Transforming growth factor β (TGF-β) signaling plays an integral role in skeletal development. Conditional deletion of the TGF-β type II receptor (Tgfbr2) from type II Collagen (Col2a) expressing cells results in defects in development of the annulus fibrosus (AF) of the intervertebral disc (IVD). We previously used microarray analysis to search for marker genes of AF as well as transcription factors regulated by TGF-β during AF development. The transcription factor avian erythroblastosis virus E-26 (v-ets) oncogene related (Erg) was identified in the microarray screen as a candidate regulator of AF development. To study the effects of TGF-β on AF differentiation and the role of Erg in this process, we used mouse sclerotome grown in micromass cultures. At 0.5. ng TGF-β/ml, sclerotome cells started to express markers of AF. Regulation of Erg by TGF-β was confirmed in these cells. In addition, TGF-β soaked Affi-gel beads implanted into the axial skeleton of stage HH 25 chick embryos showed that TGF-β could induce expression of Erg mRNA in vivo. Next, an adenovirus to over-express Erg in primary sclerotome micromass cultures was generated. Over-expression of Erg led to a change in cell morphology and inhibition of differentiation into hyaline cartilage as seen by reduced Alcian blue staining and decreased Sox9 and c- Maf expression. Erg was not sufficient to induce expression of AF markers and expression of Sca1, a marker of pluripotent progenitor cells, was up-regulated in Erg expressing cells. When cells that ectopically expressed Erg were treated with TGF-β, enhanced expression of specific differentiation markers was observed suggesting Erg can cooperate with TGF-β to regulate differentiation of the sclerotome. Furthermore, we showed using co-immunopreciptiation that Erg and Smad3 bind to each other suggesting a mechanism for their functional interaction.