Signaling mechanisms mediated by the Transforming Growth Factor-beta (TGF-beta) superfamily regulate a variety of developmental processes. Here we show that components of both bone morphogenetic protein/growth differentiation factor and TGF-beta/activin/Nodal branches of TGF-beta superfamily signaling are expressed in the developing subpallium. Furthermore, Smad proteins, transcriptional effectors of TGF-beta signaling, are co-expressed and physically interact in the basal ganglia with Dlx homeodomain transcription factors, which are critical regulators of the differentiation, migration and survival of telencephalic GABAergic neurons. We also show that Dlx and Smad proteins localize to promoters/enhancers of a number of common telencephalic genes in vivo and that Smad proteins co-activate transcription with Dlx family members, except with certain mutated human DLX proteins identified in autistic individuals. In agreement with these observations, expression of dominant-negative Smads in the developing basal ganglia phenocopies the cell migration defects observed in Dlx1/2-deficient mice. Together, these results suggest that TGF-beta superfamily signaling plays a role in telencephalic GABAergic neuron development through functional interactions with Dlx transcription factors. ELECTRONIC SUPPLEMENTARY MATERIAL: The online version of this article (doi:10.1007/s11689-009-9035-6) contains supplementary material, which is available to authorized users.