Although genetic studies have suggested that heparan sulfate (HS) is involved in bone morphogenetic protein (BMP)-mediated embryonic morphogenesis, it is unclear whether HS is directly involved in BMP-mediated signaling. Here, we investigate the involvement of HS in BMP-7 signaling. We show that HS and heparin chains specifically bind to BMP-7. Digestion of cell-surface HS with heparitinase interferes with BMP-7-mediated Smad phosphorylation in ROS 17/2.8 osteoblastic cells. Inhibiting sulfation of cell-surface HS with chlorate also causes interruption of Smad phosphorylation. Addition of exogenous heparin to ROS 17/2.8 cells prevents BMP-7-mediated Smad phosphorylation rather than enhances the BMP-7 signal, suggesting that HS should be anchored on the plasma membrane for BMP signaling. Moreover, BMP-7 binding to ROS 17/2.8 cells is inhibited by chlorate treatment and exogenous application of heparin. These results demonstrate that BMP-7 specifically binds to cell-surface HS and the BMP-7-HS interaction is required for BMP-7 signaling. (C) 2003 Elsevier Inc. All rights reserved.