Smad7 is a regulatory Smad protein that is able to antagonize signal transduction by transforming growth factor-beta (TGF-beta) and activin receptors. To characterize the regulation of Smad7 at the transcriptional level, we isolated the promoter region of the mouse Smad7 gene. When the Smad7 promoter luciferase reporter gene (-408 and +112 bp) was expressed in human hepatoma (HepG2) cells, its transcriptional activity was increased following TGF-beta or activin treatment. In addition, this region of the Smad7 promoter was stimulated by ectopic expression of Smad3 as well as constitutively active TGF-beta and activin receptors, indicating that Smad7 transcription was modulated by the signaling downstream those two receptors. A gel mobility shift assay indicated that a DNA fragment spanning -408 to -126 base pairs (bp) was able to directly bind purified Smad4. Furthermore, a consensus Smad3-Smad4 binding element (SBE) was discovered in this region of the promoter with a palindromic sequence of GTCTAGAC. A 33-bp Smad7 promoter fragment containing this SBE was able to bind Smad3 and Smad4. In human embryonic kidney 293 cells, the expression of constitutively active TGF-beta type I receptor was able to induce the formation of a Smad3- and Smad4-containing nuclear protein complex that bound the SBE. In HepG2 cells, TGF-beta1 treatment could induce the formation of an endogenous SBE-binding complex. Taken together, these data provided the first evidence that Smad7 transcription is regulated by TGF-beta and activin signaling through direct binding of Smad3 and Smad4 to the Smad7 promoter.