Bone morphogenetic proteins (BMPs) induce osteoblastic differentiation in myogenic cells via the phosphorylation of Smads. Two types of Smad phosphatases--small C-terminal domain phosphatase 1 (SCP1) and protein phosphatase magnesium-dependent 1A--have been shown to inhibit BMP activity. Here, we report that SCP1 inhibits the osteoblastic differentiation induced by BMP-4, a constitutively active BMP receptor, and a constitutively active form of Smad1. The phosphatase activity of SCP1 was required for this suppression, and the knockdown of SCP1 in myoblasts stimulated the osteoblastic differentiation induced by BMP signaling. In contrast to protein phosphatase magnesium-dependent 1A, SCP1 did not reduce the protein levels of Smad1 and failed to suppress expression of the Id1, Id2, and Id3 genes. Runx2-induced osteoblastic differentiation was suppressed by SCP1 without affecting the transcriptional activity or phosphorylation levels of Runx2. Taken together, these findings suggest that SCP1 may inhibit the osteoblastic differentiation induced by the BMP-Smad axis via Runx2 by suppressing downstream effector(s).