Melorheostosis is a rare sclerosing dysostosis characterized by asymmetric exuberant bone formation. Recently, we reported that somatic mosaicism for MAP2K1-activating mutations causes radiographical “dripping candle wax” melorheostosis. We now report somatic SMAD3 mutations in bone lesions of four unrelated patients with endosteal pattern melorheostosis. In vitro, the SMAD3 mutations stimulated the TGF-β pathway in osteoblasts, enhanced nuclear translocation and target gene expression, and inhibited proliferation. Osteoblast differentiation and mineralization were stimulated by the SMAD3 mutation, consistent with higher mineralization in affected than in unaffected bone, but differing from MAP2K1 mutation–positive melorheostosis. Conversely, osteoblast differentiation and mineralization were inhibited when osteogenesis of affected osteoblasts was driven in the presence of BMP2. Transcriptome profiling displayed that TGF-β pathway activation and ossification-related processes were significantly influenced by the SMAD3 mutation. Co-expression clustering illuminated melorheostosis pathophysiology, including alterations in ECM organization, cell growth, and interferon signaling. These data reveal antagonism of TGF-β/SMAD3 activation by BMP signaling in SMAD3 mutation–positive endosteal melorheostosis, which may guide future therapies.