Transforming growth factor-beta (TGF-β) and bone morphogenic protein (BMP) signaling has fundamental roles in both embryonic skeletal development and postnatal bone homeostasis. TGF-βs and BMPs, acting on a tetrameric receptor complex, transduce signals to both the canonical Smad-dependent signaling pathway (that is, TGF-β/BMP ligands, receptors, and Smads) and the non-canonical-Smad-independent signaling pathway (that is, p38 mitogen-activated protein kinase/p38 MAPK) to regulate mesenchymal stem cell differentiation during skeletal development, bone formation and bone homeostasis. Both the Smad and p38 MAPK signaling pathways converge at transcription factors, for example, Runx2 to promote osteoblast differentiation and chondrocyte differentiation from mesenchymal precursor cells. TGF-β and BMP signaling is controlled by multiple factors, including the ubiquitin–proteasome system, epigenetic factors, and microRNA. Dysregulated TGF-β and BMP signaling result in a number of bone disorders in humans. Knockout or mutation of TGF-β and BMP signaling-related genes in mice leads to bone abnormalities of varying severity, which enable a better understanding of TGF-β/BMP signaling in bone and the signaling networks underlying osteoblast differentiation and bone formation. There is also crosstalk between TGF-β/BMP signaling and several critical cytokines’ signaling pathways (for example, Wnt, Hedgehog, Notch, PTHrP, and FGF) to coordinate osteogenesis, skeletal development, and bone homeostasis. This review summarizes the recent advances in our understanding of TGF-β/BMP signaling in osteoblast differentiation, chondrocyte differentiation, skeletal development, cartilage formation, bone formation, bone homeostasis, and related human bone diseases caused by the disruption of TGF-β/BMP signaling.