Kinase activation and substrate phosphorylation commonly form the backbone of signaling cascades. Bone morphogenetic proteins (BMPs), a subclass of TGF-β family ligands, induce activation of their signaling effectors, the Smads, through C-terminal phosphorylation by transmembrane receptor kinases. However, the slow kinetics of Smad activation in response to BMP suggests a preceding step in the initiation of BMP signaling. We now show that arginine methylation, which is known to regulate gene expression, yet also modifies some signaling mediators, initiates BMP-induced Smad signaling. BMP-induced receptor complex formation promotes interaction of the methyltransferase PRMT1 with the inhibitory Smad6, resulting in Smad6 methylation and relocalization at the receptor, leading to activation of effector Smads through phosphorylation. PRMT1 is required for BMP-induced biological responses across species, as evidenced by the role of its ortholog Dart1 in BMP signaling during Drosophila wing development. Activation of signaling by arginine methylation may also apply to other signaling pathways.