Smad7 is an inducible intracellular inhibitor of transforming growth factor-beta (TGF-beta) signaling that is regulated by diverse stimuli including members of the TGF-beta superfamily. To define the molecular mechanisms of negative control of TGF-beta signaling, we have isolated the human SMAD7 gene and characterized its promoter region. A -303 to +672 SMAD7 region contained a palindromic GTCTAGAC Smad binding element (SBE) between nucleotides -179 and -172 that was necessary for the induction of a Smad7 promoter luciferase reporter gene by TGF-beta. Electrophoretic mobility shift assays using oligonucleotide probes demonstrated that TGF-beta rapidly induced the binding of an endogenous SBE-binding complex (SBC) containing Smad2, Smad3, and Smad4. Transfection assays in mouse embryonic fibroblasts (MEFs), with targeted deletions of either Smad2 or Smad3, and the Smad4-deficient cell line MD-MBA-468 revealed that both Smad3 and Smad4, but not Smad2, were absolutely required for induction of the Smad7 promoter reporter gene by TGF-beta. Furthermore, the TGF-beta-inducible SBE-binding complex was diminished in Smad2-deficient MEFs when compared with wild type MEFs and not detectable in Smad3-deficient MEFs and MD-MBA-468 cells. Taken together, our data demonstrate that TGF-beta induces transcription of the human SMAD7 gene through activation of Smad3 and Smad4 transcription factor binding to its proximal promoter.