Btg2 is a primary p53 transcriptional target gene which may function as a coactivator-corepressor and/or an adaptor molecule that modulates the activities of its interacting proteins. We have generated Btg2-null mice to elucidate the in vivo function of Btg2. Btg2-null mice are viable and fertile but exhibit posterior homeotic transformations of the axial vertebrae in a dose-dependent manner. Consistent with its role in vertebral patterning, Btg2 is expressed in the presomitic mesoderm, tail bud, and somites during somitogenesis. We further provide biochemical evidence that Btg2 interacts with bone morphogenetic protein (BMP)-activated Smads and enhances the transcriptional activity of BMP signaling. In view of the genetic evidence that reduced BMP signaling causes posteriorization of the vertebral pattern, we propose that the observed vertebral phenotype in Btg2-null mice is due to attenuated BMP signaling.