TGF-β and myostatin are the two most important regulators of muscle growth. Both growth factors have been shown to signal through a Smad3-dependent pathway. However to date, the role of Smad3 in muscle growth and differentiation is not investigated. Here, we demonstrate that Smad3-null mice have decreased muscle mass and pronounced skeletal muscle atrophy. Consistent with this, we also find increased protein ubiquitination and elevated levels of the ubiquitin E3 ligase MuRF1 in muscle tissue isolated from Smad3-null mice. Loss of Smad3 also led to defective satellite cell (SC) functionality. Smad3-null SCs showed reduced propensity for self-renewal, which may lead to a progressive loss of SC number. Indeed, decreased SC number was observed in skeletal muscle from Smad3-null mice showing signs of severe muscle wasting. Further in vitro analysis of primary myoblast cultures identified that Smad3-null myoblasts exhibit impaired proliferation, differentiation and fusion, resulting in the formation of atrophied myotubes. A search for the molecular mechanism revealed that loss of Smad3 results in increased myostatin expression in Smad3-null muscle and myoblasts. Given that myostatin is a negative regulator, we hypothesize that increased myostatin levels are responsible for the atrophic phenotype in Smad3-null mice. Consistent with this theory, inactivation of myostatin in Smad3-null mice rescues the muscle atrophy phenotype.