Drm/Gremlin, a member of the Dan family of BMP antagonists, is known to function in early embryonic development, but is also expressed in a tissue-specific fashion in adults and is significantly downregulated in transformed cells. In this report, we demonstrate that overexpression of Drm in the tumor-derived cell lines Daoy (primitive neuroectodermal) and Saos-2 (osteoblastic), either under ecdysone-inducible or constitutive promoters, significantly inhibits tumorigenesis. Furthermore, Drm overexpression in these cells increases the level of p21(Cip1) protein and reduces the level of phosphorylated p42/44 MAP kinase. Finally, our data indicate that Drm can induce P21(Cip1) transcriptionally via a novel pathway that is independent of p53 and the p38 and p42/44 MAP kinases. These results provide evidence that Drm, can function as a novel transformation suppressor and suggest that this may occur through its affect on the levels of p21(Cip1) and phosphorylated p42/44 MAPK. (C) 2002 Elsevier Science (USA). All rights reserved.