Both the transforming growth factor-beta (TGFbeta)/Smad and the prolactin/JAK/STAT pathway are critical to the proper development, maintenance, and function of the mammary epithelial tissue. Interestingly, opposing physiological effects between these two signaling pathways are prominent in the regulation of mammary gland development. However, the exact nature of the biological network existing between the Smad and STAT signal transduction pathways has remained elusive. We identified a novel regulatory cross-talk mechanism by which TGFbeta-induced Smad signaling acts to antagonize prolactin-mediated JAK/STAT signaling and expression of target genes. Furthermore, we found activin, another member of the TGFbeta family, to also efficiently block STAT5 signaling and beta-casein expression in mammary epithelial cells. Our results indicate that ligand-induced activation of Smad2, -3, and -4 by activin and TGFbeta leads to a direct inhibition of STAT5 transactivation and STAT5-mediated transcription of the downstream target genes, beta-casein and cyclin D1, thereby blocking vital processes for mammary gland growth and differentiation. Finally, we unveiled the mechanism by which these two signaling cascades antagonize their effects, and we found that activated Smads inhibit STAT5 association with its co-activator CREB-binding protein, thus blocking STAT5 transactivation of its target genes and leading to inhibition of mammary gland differentiation and lactation.