Transforming growth factor beta (TGF-beta) is implicated in the regulation of smooth muscle cell (SMC) differentiation. We previously identified a novel TGF-beta control element (TCE) in the promoters of SMC differentiation marker genes, including alpha-smooth muscle actin and SM22alpha. In this study, the importance of the TCE in regulation of SM22alpha gene expression in vivo was investigated by mutating it within the context of a mouse SM22alpha promoter-lacZ transgenic construct. Mutation of the TCE completely abolished SM22alpha promoter activity in arterial SMCs as well as in developing heart and skeletal muscle. To identify the transcription factor(s) binding to the TCE, we performed yeast one-hybrid cloning analysis and identified gut-enriched Krüppel-like factor (GKLF). However, cotransfection studies in cultured cells showed that GKLF repressed the TGF-beta-dependent increases in SM22alpha and alpha-smooth muscle actin promoter activities. Furthermore, GKLF was not highly expressed in differentiated SMCs in vivo, and TGF-beta down-regulated GKLF expression in dedifferentiated cultured SMCs. In contrast, overexpression of a related factor (BTEB2) transactivated SM22alpha promoter activity. Thus, our findings suggest a reciprocal role for related Krüppel-like transcription factors in the regulation of SMC differentiation through a TCE-dependent mechanism.