The mechanism by which TGF-β regulates renal inflammation and fibrosis is largely unclear; however, it is well accepted that its biological effects are mediated through Smad2 and Smad3 phosphorylation. Following activation, these Smads form heteromeric complex with Smad4 and translocate into the nucleus to bind and regulate the expression of target genes. Here we studied the roles of Smad4 to regulate TGF-β signaling in a mouse model of unilateral ureteral obstruction using conditional Smad4 knockout mice and in isolated Smad4 mutant macrophages and fibroblasts. Disruption of Smad4 significantly enhanced renal inflammation as evidenced by a greater CD45(+) leukocyte and F4/80(+) macrophage infiltration and upregulation of IL-1β, TNF-α, MCP-1, and ICAM-1 in the obstructed kidney and in IL-1β-stimulated macrophages. In contrast, deletion of Smad4 inhibited renal fibrosis and TGF-β1-induced collagen I expression by fibroblasts. Further studies showed that the loss of Smad4 repressed Smad7 transcription, leading to a loss of functional protein. This, in turn, inhibited IκBα expression but enhanced NF-κB activation, thereby promoting renal inflammation. Interestingly, deletion of Smad4 influenced Smad3-mediated promoter activities and the binding of Smad3 to the COL1A2 promoter, but not Smad3 phosphorylation and nuclear translocation, thereby inhibiting the fibrotic response. Thus, Smad4 may be a key regulator for the diverse roles of TGF-β1 in inflammation and fibrogenesis by interacting with Smad7 and Smad3 to influence their transcriptional activities in renal inflammation and fibrosis.