Transforming growth factor (TGF)-beta is present in large amounts in the airways of patients with asthma and with other diseases of the lung. We show here that TGF beta treatment increased transcriptional activation of SM22 alpha, a smooth muscle-specific promoter, in airway smooth muscle cells, and we demonstrate that this effect stems in part from TGF beta-induced enhancement of serum response factor (SRF) DNA binding and transcription promoting activity. Overexpression of Smad7 inhibited TGF beta-induced stimulation of SRF-dependent promoter function, and chromatin immunoprecipitation as well as co-immunoprecipitation assays established that endogenous or recombinant SRF interacts with Smad7 within the nucleus. The SRF binding domain of Smad7 mapped to the C-terminal half of the Smad7 molecule. TGF beta treatment weakened Smad7 association with SRF, and conversely the Smad7-SRF interaction was increased by inhibition of the TGF beta pathway through overexpression of a dominant negative mutant of TGF beta receptor I or of Smad3 phosphorylation-deficient mutant. Our findings thus reveal that SRF-Smad7 interactions in part mediate TGF beta regulation of gene transcription in airway smooth muscle. This offers potential targets for interventions in treating lung inflammation and asthma.