Smads are signal transducers for the transforming growth factor-beta superfamily of factors. In early Xenopus embryos, the transforming growth factor-beta member activin induces the gene Mix.2 by stimulating the formation of a multiprotein complex, activin-responsive factor (ARF). This complex contains Smad2 or Smad3, Smad4, and a novel forkhead transcription factor, FAST-1, and binds to an enhancer (activin-responsive element; ARE) that confers activin regulation of Mix.2 transcription. Both FAST-1 and Smads can bind directly to the ARE; we have investigated 1) the role of FAST-1 and Smad DNA binding sites in ARF recognition of the ARE, 2) the contributions of FAST-1 and Smad binding to ARF binding in vitro and to ARE regulation in early Xenopus embryos, 3) the extent to which different Smads can replace Smad4 in regulation of the ARE. We find that ARF binds to ARE through both FAST-1 and Smad binding sites. FAST-1 recognition of the ARE is essential both for ARF binding in vitro and activin regulation in vivo. In contrast, Smad binding of ARE is unnecessary for ARF binding or activin regulation but does enhance the binding and regulatory activity of ARF. Also, Smad3 can partially substitute for Smad4 in the regulation of the ARE. These observations elucidate how broadly expressed signal transducers (Smads) regulate a developmentally specific transcriptional response in conjunction with a temporally restricted transcription factor, FAST-1.