Differentiation of smooth muscle cells (SMCs) is critical for proper vasculogenesis and angiogenesis. However, the molecular mechanisms controlling SMC differentiation are not completely understood. During embryogenesis, the transcription factor mesenchyme homeobox 1 (Meox1) is expressed in the early developing somite, which is one of the origins of SMCs. In the present study, we identified Meox1 as a positive regulator of SMC differentiation. We found that transforming growth factor-β (TGF-β) induces Meox1 expression in the initial phase of SMC differentiation of pluripotent murine C3H10T1/2 cells. shRNA-mediated Meox1 knockdown suppressed TGF-β-induced expression of SMC early markers, whereas Meox1 overexpression increased expression of these markers. Mechanistically, Meox1 promoted SMAD family member 3 (Smad3) nuclear retention during the early stage of TGF-β stimulation because Meox1 inhibited protein phosphatase Mg2+/Mn2+-dependent 1A (PPM1A) and thereby prevented PPM1A-mediated Smad3 dephosphorylation. Meox1 appears to promote PPM1A degradation, leading to sustained Smad3 phosphorylation, thus allowing Smad3 to stimulate SMC gene transcription. In vivo, Meox1 knockdown in mouse embryos impaired SMC marker expression in the descending aorta of neonatal mice, indicating that Meox1 is essential for SMC differentiation during embryonic development. In summary, the transcriptional regulator Meox1 controls TGF-β-induced SMC differentiation from mesenchymal progenitor cells by preventing PPM1A-mediated Smad3 dephosphorylation, thereby supporting SMC gene expression.