Follistatin-related protein 1 (FSTL1) plays a critical role in lung development through regulating BMP4-p-Smad1/5/8-Smad4 pathway. Regarding that many developmental pathways in embryogenesis are dysregulated in cancer, we aim to unravel the role of FSTL1-BMP4-Smad pathway in lung cancer. Our results showed low FSTL1 immunoexpression was significantly correlated with poor prognosis while patients with low BMP4 or low Smad4 immunoexpression showed a trend toward poor prognosis. When stratified by different histological types, low FSTL1, BMP4, and Smad4 expression retained their trends in predicting poor prognosis in lung adenocarcinoma (LUAD) but not in lung squamous cell carcinoma (SCC). Low FSTL1, BMP4, and Smad4 expression were more frequently observed in LUAD patients with smoking history. To determine smoking effect on FSTL1, normal cell BEAS2B and lung cancer cell lines was treated with nicotine and the results showed nicotine increased the proliferation of these cells. Interestingly, FSTL1 attenuated nicotine-induced BEAS2B and lung cancer cell line proliferation. Altogether, low FSTL1, BMP4, and Smad4 expression significantly correlated with poor prognosis in LUAD but not in SCC. Frequent decrease of FSTL1 expression in smokers LUAD further indicates its importance and therapeutic potential for lung cancer patients with specific subtypes. FSTL1 may prevent nicotine-induced lung cancer cell proliferation.