TGF-beta signaling in the nematode Caenorhabditis elegans plays multiple roles in the development of the animal. The Sma/Mab pathway controls body size, male tail sensory ray identity and spicule formation. Three Smad genes, sma-2, sma-3 and sma-4, are all required for signal transduction, suggesting that the functional complex could be a heterotrimer. Because the C termini of Smads play important roles in receptor-mediated activation and heteromeric complex formation, we generated C-terminal mutations in the C. elegans Smad genes and tested their activities in vivo in each of their distinct developmental roles. We show that pseudophosphorylated SMA-3 is dominant negative in body size, but functional in sensory ray and spicule development. Somewhat differently, pseudophosphorylated SMA-2 is active in any tissue. The C-terminal mutants of SMA-4 function like wild type, suggesting that the SMA-4 C terminus is dispensable. Using a combination of different C-terminal mutations in SMA-2 and SMA-3, we found a complex set of requirements for Smad-phosphorylation state that are specific to each outcome. Finally, we detected a physical interaction of SMA-3 with the forkhead transcription factor LIN-31, which is enhanced by SMA-3 pseudophosphorylation and reduced in an unphosphorylatable mutant. We conclude that the tissue-specific requirements for Smad phosphorylation may result, in part, from the need to interact with tissue-specific transcription co-factors that have different affinities for phosphorylated and unphosphorylated Smad protein.