Diabetic nephropathy is the leading cause of end-stage renal disease. It is pathologically characterized by the accumulation of extracellular matrix in the mesangium, of which the main component is alpha 1/alpha 2 type IV collagen (Col4a1/a2). Recently, we identified Smad1 as a direct regulator of Col4a1/a2 under diabetic conditions in vitro. Here, we demonstrate that Smad1 plays a key role in diabetic nephropathy through bone morphogenetic protein 4 (BMP4) in vivo. Smad1-overexpressing mice (Smad1-Tg) were established, and diabetes was induced by streptozotocin. Nondiabetic Smad1-Tg did not exhibit histological changes in the kidney; however, the induction of diabetes resulted in an similar to 1.5-fold greater mesangial expansion, consistent with an increase in glomerular phosphorylated Smad1. To address regulatory factors of Smad1, we determined that BMP4 and its receptor are increased in diabetic glomeruli and that diabetic Smad1-Tg and wild-type mice treated with a BMP4-neutralizing antibody exhibit decreased Smad1 phosphorylation and similar to 40% less mesangial expansion than those treated with control IgG. Furthermore, heterozygous Smad1 knockout mice exhibit attenuated mesangial expansion in the diabetic condition. The data indicate that BMP4/Smad1 signaling is a critical cascade for the progression of mesangial expansion and that blocking this signal could be a novel therapeutic strategy for diabetic nephropathy.