Transforming growth factor beta (TGF-beta)/bone morphogenetic protein (BMP) signaling is crucial for regulating epithelial-mesenchymal interaction during organogenesis, and the canonical Smad pathway-mediated TGF-beta/BMP signaling plays important roles during development and disease. During tooth development, dental epithelial cells, known as Hertwig's epithelial root sheath (HERS), participate in root formation following crown development. However, the functional significance of HERS in regulating root development remains unknown. In this study we investigated the signaling mechanism of Smad4, the common Smad for TGF-beta/BMP signaling, in HERS in regulating root development. Tissue-specific inactivation of Smad4 in HERS results in abnormal enamel and dentin formation in K14-Cre;Smad4(fl/fl) mice. HERS enlarges but cannot elongate to guide root development without Smad4. At the molecular level, Smad4-mediated TGF-beta/BMP signaling is required for Shh expression in HERS and Nfic (nuclear factor lc) expression in the cranial neural crest (CNC)-derived dental mesenchyme. Nfic is crucial for root development, and loss of Nfic results in a CNC-derived dentin defect similar to the one of K14-Cre;Smad4(fl/fl) mice. Significantly, we show that ectopic Shh induces Nfic expression in dental mesenchyme and partially rescues root development in K14-Cre;Smad4(fl/fl) mice. Taken together, our study has revealed an important signaling mechanism in which TGF-beta/BMP signaling relies on a Smad-dependent mechanism in regulating Nfic expression via Shh signaling to control root development. The interaction between HERS and the CNC-derived dental mesenchyme may guide the size, shape, and number of tooth roots. (C) 2010 American Society for Bone and Mineral Research.