An alternatively spliced variant of Smad2 with a deletion of exon 3 (Smad2Deltaexon3) is found in various cell types. Here, we studied the function of Smad2Deltaexon3 and compared it with those of wild-type Smad2 containing exon 3 (Smad2(wt)) and Smad3. When transcriptional activity was measured using the p3TP-lux construct, Smad2Deltaexon3 was more potent than Smad2(wt), and had activity similar to Smad3. Transcriptional activation of the activin-responsive element (ARE) of Mix.2 gene promoter by Smad2Deltaexon3 was also similar to that by Smad3, and slightly less potent than that by Smad2(wt). Phosphorylation by the activated transforming growth factor-beta type I receptor and heteromer formation with Smad4 occurred to similar extents in Smad2Deltaexon3, Smad2(wt), and Smad3. However, DNA binding to the activating protein-1 sites of p3TP-lux was observed in Smad2Deltaexon3 as well as in Smad3, but not in Smad2(wt). In contrast, Smad2(wt), Smad2Deltaexon3, and Smad3 efficiently formed ARE-binding complexes with Smad4 and FAST1, although Smad2(wt) did not directly bind to ARE. These results suggest that exon 3 of Smad2 interferes with the direct DNA binding of Smad2, and modifies the function of Smad2 in transcription of certain target genes.