Current approaches for the treatment of skeletal defects are suboptimal, principally because the ability of bone to repair and regenerate is poor. Although the promise of effective cellular therapies for skeletal repair is encouraging, these approaches are limited by the risks of infection, cellular contamination, and tumorigenicity. Development of a pharmacological approach would therefore help avoid some of these potential risks. This study identifies transforming growth factor beta (TGFβ) signaling as a potential pathway for pharmacological modulation in vivo. We demonstrate that inhibition of TGFβ signaling by the small molecule SB431542 potentiates calvarial skeletal repair through activation of bone morphogenetic protein (BMP) signaling on osteoblasts and dura mater cells participating in healing of calvarial defects. Cells respond to inhibition of TGFβ signaling by producing higher levels of BMP2 that upregulates inhibitory Smad6 expression, thus providing a negative feedback loop to contain excessive BMP signaling. Importantly, study on human osteoblasts indicates that molecular mechanism(s) triggered by SB431542 are conserved. Collectively, these data provide insights into the use of small molecules to modulate key signaling pathways for repairing skeletal defects.