The rapid induction of alpha interferon (IFN-alpha) and IFN-beta expression plays a critical role in the innate immune response against viral infection. We studied the effects of transforming growth factor beta (TGF-beta) and its intracellular effectors, the Smads, on the function of IRF-7, an essential transcription factor for IFN-alpha and -beta induction. IRF-7 interacted with Smads, and IRF-7, but not IRF-3, cooperated with Smad3 to activate IFN-beta transcription. This transcriptional cooperation occurred at the IRF-binding sequences in the IFN-beta promoter, and dominant-negative interference with TGF-beta receptor signaling and Smad3 function decreased IRF-7-mediated transcription. Furthermore, elimination of Smad3 expression in Smad3(-/-) fibroblasts delayed and decreased double-stranded RNA-induced expression of endogenous IFN-beta, whereas restoration of Smad3 expression enhanced IFN-beta induction. The IRF-7-Smad3 cooperativity resulted from the regulation of the transactivation activity of IRF-7 by Smad3, and dominant-negative interference with Smad3 function decreased IRF-7 activity. Consistent with the regulation by Smad3, the transcriptional activity of IRF-7 depended on and was regulated by TGF-beta signaling. Our studies underscore a role of TGF-beta/Smad3 signaling in IRF-7-mediated induction of IFN-beta expression.