Transforming growth factor beta1 (TGF-beta1) and myostatin signaling, mediated by the same Smad downstream effectors, potently repress skeletal muscle cell differentiation. Smad7 inhibits these cytokine signaling pathways. The role of Smad7 during skeletal muscle cell differentiation was assessed. In these studies, we document that increased expression of Smad7 abrogates myostatin- but not TGF-beta1-mediated repression of myogenesis. Further, constitutive expression of exogenous Smad7 potently enhanced skeletal muscle differentiation and cellular hypertrophy. Conversely, targeting of endogenous Smad7 by small interfering RNA inhibited C2C12 muscle cell differentiation, indicating an essential role for Smad7 during myogenesis. Congruent with a role for Smad7 in myogenesis, we observed that the muscle regulatory factor (MyoD) binds to and transactivates the Smad7 proximal promoter region. Finally, we document that Smad7 directly interacts with MyoD and enhances MyoD transcriptional activity. Thus, Smad7 cooperates with MyoD, creating a positive loop to induce Smad7 expression and to promote MyoD driven myogenesis. Taken together, these data implicate Smad7 as a fundamental regulator of differentiation in skeletal muscle cells.