It has been shown that transforming growth factor-beta (TGF-beta) is a potent mediator in renal fibrosis and that Smad proteins are critical intracellular mediators in TGF-beta signaling. It is here reported that TGF-beta mediates renal fibrogenesis in tubular epithelial cells (TEC) in association with the activation of Smad2 and that overexpression of Smad7 blocks this fibrotic process. Using a normal rat kidney tubular epithelial cell line (NRK52E), it was determined that TGF-beta1 induces Smad2 phosphorylation and nuclear localization in both a dose- and time-dependent manner. The activation of Smad2 was evident at 5 min (20%), peaked at 15 to 30 min (85%), and declined to baseline levels by 2 h (5 to 10%). This was associated with de novo expression of collagens I, III, and IV and the transformation of TEC into a "myofibroblast" phenotype with de novo expression of alpha-smooth muscle actin (alpha-SMA) and with the loss of E-cadherin (>50%). To investigate a negative regulatory role of Smad7 in renal fibrosis, the Smad 7 gene was stably transfected and its expression was tightly controlled by doxycycline into NRK52E cells. Overexpression of Smad7 induced by doxycycline results in marked inhibition of TGF-beta-induced Smad2 activation (90% downward arrow) with the prevention of collagen synthesis and myofibroblast transformation. Thus, Smad2 activation occurs in the fibrogenic response of TEC to TGF-beta, and this process is blocked by overexpression of Smad7. This indicates that Smad signaling is a key pathway of TGF-beta-mediated renal fibrosis and suggests that treatments targeting the inactivation of Smad2 by overexpression of Smad7 may provide a new therapeutic strategy for renal fibrosis.