Two regulatory pathways, bone morphogenetic protein (BMP)/transforming growth factor-β (TGFβ) and the transcription factor RUNX2, are required for bone formation in vivo. Here we show the interdependent requirement of these pathways to induce an osteogenic program. A panel of Runx2 deletion and point mutants was used to examine RUNX2-SMAD protein-protein interaction and the biological consequences on BMP2-induced osteogenic signaling determined in Runx2 null cells. These cells do not respond to BMP2 signal in the absence of Runx2. We established that a triple mutation in the C-terminal domain of RUNX2, HTY (426-428), disrupts the RUNX2-SMAD interaction, is deficient in its ability to integrate the BMP2/TGFβ signal on promoter reporter assays, and is only marginally functional in promoting early stages of osteoblast differentiation. Furthermore, the HTY mutation overlaps the unique nuclear matrix targeting signal of Runx factors and exhibits reduced subnuclear targeting. Thus, formation of a RUNX2-SMAD osteogenic complex and subnuclear targeting are structurally and functionally inseparable. Our results establish the critical residues of RUNX2 for execution and completion of BMP2 signaling for osteoblastogenesis through a mechanism that requires RUNX2-SMAD transcriptional activity. © 2008 by The American Society for Biochemistry and Molecular Biology, Inc.