A prominent pathway of transforming growth factor (TGF)-beta signaling involves receptor-dependent phosphorylation of Smad2 and Smad3, which then translocate to the nucleus to activate transcription of target genes. To investigate the relative importance of these two Smad proteins in TGF-beta1 signal transduction, we have utilized a loss of function approach, based on analysis of the effects of TGF-beta1 on fibroblasts derived from mouse embryos deficient in Smad2 (S2KO) or Smad3 (S3KO). TGF-beta1 caused 50% inhibition of cellular proliferation in wild-type fibroblasts as assessed by [(3)H]thymidine incorporation, whereas the growth of S2KO or S3KO cells was only weakly inhibited by TGF-beta1. Lack of Smad2 or Smad3 expression did not affect TGF-beta1-induced fibronectin synthesis but resulted in markedly suppressed induction of plasminogen activator inhibitor-1 by TGF-beta1. Moreover, TGF-beta1-mediated induction of matrix metalloproteinase-2 was selectively dependent on Smad2, whereas induction of c-fos, Smad7, and TGF-beta1 autoinduction relied on expression of Smad3. Investigation of transcriptional activation of TGF-beta-sensitive reporter genes in the different fibroblasts showed that activation of the (Smad binding element)(4)-Lux reporter by TGF-beta1 was dependent on expression of Smad3, but not Smad2, whereas activation of the activin response element-Lux reporter was strongly suppressed in S2KO fibroblasts but, on the contrary, enhanced in S3KO cells. Our findings indicate specific roles for Smad2 and Smad3 in TGF-beta1 signaling.