Transforming growth factor-beta (TGF-beta) stimulates the transcription of the alpha2(I) procollagen gene (COL1A2). The intracellular mediators involved in this response remain poorly understood. In this study, we demonstrate that primary human skin fibroblasts express Smads, a novel family of signaling molecules, in vitro in the absence of TGF-beta. The levels of Smad 7 mRNA was rapidly and transiently increased by TGF-beta. Transient overexpression of Smad 3 and Smad 4, but not Smad 1 or Smad 2, caused trans-activation of a CAT reporter gene driven by a 772 bp segment of the human COL1A2 promoter containing putative TGF-beta response elements. Smad stimulation of promoter activity was ligand independent, but was further enhanced by TGF-beta. Overexpression of a phosphorylation-deficient Smad 3 mutant or wild-type Smad 7, which lacks the carboxy-terminal phosphorylation motif, specifically inhibited TGF-beta-induced activation of COL1A2 promoter. A CAGACA sequence shown to be a functional Smad-binding element in the plasminogen activator inhibitor-1 gene promoter was found within the TGF-beta-response region of the proximal COL1A2 promoter. Gel mobility shift assays showed protein phosphorylation-dependent binding activity in fibroblast nuclear extracts specific for this sequence; TGF-beta treatment strongly stimulated the formation of this DNA-protein complex. Smad was identified as a component of the CAGACA-binding transcription complex in TGF-beta-treated fibroblasts by antibody supershifting. These results demonstrate that (i) Smad 3 transmits TGF-beta signals from the receptor to the COL1A2 promoter in human fibroblasts, and is likely to play an important role in stimulation of COL1A2 promoter activity elicited by TGF-beta; (ii) in fibroblasts, Smads appear to function as inducible DNA-binding transcription factors; and (iii) Smad 7 may be involved in autocrine negative feedback in the regulation of COL1A2 promoter activity by TGF-beta.