TGF-beta has been postulated to play an important role in the development of pancreatic cancers. More than 50% of human pancreatic cancers bear mutations of Sma- and Mad-related protein (Smad) 4, a critical protein required for TGF-beta signaling. To evaluate the in vivo function of TGF-beta in the development of pancreatic cancers, we generated a transgenic mouse model with pancreas-specific expression of Smad7, a specific inhibitor of TGF-beta signaling. Through the use of elastase I promoter, we directed the tissue specific expression of exogenous Smad7. Consistently, the exogenous Smad7 was detected only in the pancreas in the transgenic mice, and, furthermore, phosphorylation of Smad2 was blocked in the pancreatic tissues. At 6 months of age, most transgenic animals developed premalignant ductal lesions in the pancreas, with characteristics of pancreatic intraepithelial neoplasia (PanIN), a precursor to invasive pancreatic cancers. The premalignant lesions of the pancreas were accompanied by accelerated proliferation of the ductal epithelium and acinar cells, as well as increased fibrosis around the ductal lesions. This study not only demonstrated that in vivo inactivation of TGF-beta signaling is implicated in the development of early stage of pancreatic cancers, but also provided a promising animal model useful for the investigation and intervention of pancreatic cancers in humans.