Mothers against dpp (Mad) mediates Decapentaplegic (DPP) signaling throughout Drosophila development. Here we demonstrate that Medea encodes a MAD-related protein that functions in DPP signaling. MEDEA is most similar to mammalian Smad4 and forms heteromeric complexes with MAD. Like dpp, Medea is essential for embryonic dorsal/ventral patterning. However, Mad is essential in the germline for oogenesis whereas Medea is dispensable. In the wing primordium, loss of Medea most severely affects regions receiving low DPP signal. MEDEA is localized in the cytoplasm, is not regulated by phosphorylation, and requires physical association with MAD for nuclear translocation. Furthermore, inactivating MEDEA mutations prevent nuclear translocation either by preventing interaction with MAD or by trapping MAD/MEDEA complexes in the cytosol. Thus MAD-mediated nuclear translocation is essential for MEDEA function. Together these data show that, while MAD is essential for mediating all DPP signals, heteromeric MAD/MEDEA complexes function to modify or enhance DPP responses. We propose that this provides a general model for Smad4/MEDEA function in signaling by the TGF-beta family.