Recent experiments in neural, skeletal, endothelial, and hematopoietic tissues have provided new insights into the way members of the transforming growth factor-β (TGF-β) superfamily regulate cellular differentiation. TGF-βs regulate the fate of multipotential stem cells instructively (in the neural crest) by regulating the expression or function of tissue-specific transcription factors, as well as selectively (in the mesenchyme) by regulating the expression of required growth factors and their receptors. During skeletal development, TGF-βs have unique functions and act sequentially to modulate chondrocyte and osteoblast differentiation. Responsiveness to TGF-βs changes as cells differentiate and evidence now suggests that changes in TGF-β receptor profile may account for some of these differences. Drosophila and transgenic mouse models are now providing useful insights into mechanisms of TGF-β action in vivo.