MicroRNAs (miRNAs) are small non-coding RNAs that participate in the spatiotemporal regulation of messenger RNA and protein synthesis. Aberrant miRNA expression leads to developmental abnormalities and diseases, such as cardiovascular disorders and cancer; however, the stimuli and processes regulating miRNA biogenesis are largely unknown. The transforming growth factor beta (TGF-beta) and bone morphogenetic protein (BMP) family of growth factors orchestrates fundamental biological processes in development and in the homeostasis of adult tissues, including the vasculature. Here we show that induction of a contractile phenotype in human vascular smooth muscle cells by TGF-beta and BMPs is mediated by miR-21. miR-21 downregulates PDCD4 (programmed cell death 4), which in turn acts as a negative regulator of smooth muscle contractile genes. Surprisingly, TGF-beta and BMP signalling promotes a rapid increase in expression of mature miR-21 through a post-transcriptional step, promoting the processing of primary transcripts of miR-21 (pri-miR-21) into precursor miR-21 (pre-miR-21) by the DROSHA (also known as RNASEN) complex. TGF-beta- and BMP-specific SMAD signal transducers are recruited to pri-miR-21 in a complex with the RNA helicase p68 (also known as DDX5), a component of the DROSHA microprocessor complex. The shared cofactor SMAD4 is not required for this process. Thus, regulation of miRNA biogenesis by ligand-specific SMAD proteins is critical for control of the vascular smooth muscle cell phenotype and potentially for SMAD4-independent responses mediated by the TGF-beta and BMP signalling pathways.