Bone morphogenetic protein 7 (BMP-7) regulates cellular metabolism in embryonic and adult tissues. Signal transduction occurs through the activation of intracellular Smad proteins. In this paper, using a yeast two-hybrid screen, Smad1 was found to interact with the cytoplasmic domain of CD44, a receptor for the extracellular matrix macromolecule hyaluronan. Coimmunoprecipitation experiments confirmed the interaction of Smad1 with full-length CD44—interactions that did not occur when CD44 receptors truncated within the cytoplasmic domain were tested. Chondrocytes overexpressing a truncated CD44 on a background of endogenous full-length CD44 no longer exhibited Smad1 nuclear translocation upon BMP-7 stimulation. Further, pretreatment of chondrocytes with Streptomyces hyaluronidase to disrupt extracellular hyaluronan–cell interactions inhibited BMP-7–mediated Smad1 phosphorylation, nuclear translocation of Smad1 or Smad4, and SBE4–luciferase reporter activation. These results support a functional link between the BMP signaling cascade and CD44. Thus, changes in hyaluronan–cell interactions may serve as a means to modulate cellular responsiveness to BMP.