TGF beta/BMP signaling regulates the fate of multipotential cranial neural crest (CNC) cells during tooth and jawbone formation as these cells differentiate into odontoblasts and osteoblasts, respectively. The functional significance of SMAD4, the common mediator of TGF beta/BMP signaling, in regulating the fate of CNC cells remains unclear. In this study, we investigated the mechanism of SMAD4 in regulating the fate of CNC-derived dental mesenchymal cells through tissue-specific inactivation of Smad4. Ablation of Smad4 results in defects in odontoblast differentiation and dentin formation. Moreover, ectopic bone-like structures replaced normal dentin in the teeth of Osr2-IresCre;Smad4(fl/fl) mice. Despite the lack of dentin, enamel formation appeared unaffected in Osr2-IresCre; Smad4(fl/fl) mice, challenging the paradigm that the initiation of enamel development depends on normal dentin formation. At the molecular level, loss of Smad4 results in downregulation of the WNT pathway inhibitors Dkk1 and Sfrp1 and in the upregulation of canonical WNT signaling, including increased beta-catenin activity. More importantly, inhibition of the upregulated canonical WNT pathway in Osr2-IresCre; Smad4(fl/fl) dental mesenchyme in vitro partially rescued the CNC cell fate change. Taken together, our study demonstrates that SMAD4 plays a crucial role in regulating the interplay between TGF beta/BMP and WNT signaling to ensure the proper CNC cell fate decision during organogenesis.