Smads serve as intracellular mediators of transforming growth factor beta (TGF-beta) signaling. After phosphorylation by activated type I TGF-beta receptors, Smad proteins translocate to the nucleus, where they serve as transcription factors and increase or decrease expression of TGF-beta target genes. Mice lacking one copy each of Smad2 and Smad3 suffered midgestation lethality due to liver hypoplasia and anemia, suggesting essential dosage requirements of TGF-beta signal components. This is likely due to abnormal adhesive properties of the mutant hepatocytes, which may result from a decrease in the level of the beta1-integrin and abnormal processing and localization of E-cadherin. Culture of mutant livers in vitro revealed the existence of a parallel developmental pathway mediated by hepatocyte growth factor (HGF), which could rescue the mutant phenotype independent of Smad activation. These pathways merge at the beta1-integrin, the level of which was increased by HGF in the cultured mutant livers. HGF treatment reversed the defects in cell proliferation and hepatic architecture in the Smad2(+/-); Smad3(+/-) livers.