The serum concentration of transforming growth factor beta (TGF-beta) is elevated as tumors progress in hepatocellular carcinoma (HCC) patients. In this study, we examined whether modulation of tumor-derived TGF-beta signal transduction contributes to malignant progression. We investigated the production of TGF-beta1, the biological effects of TGF-beta and neutralizing antibody on HCC cells, activation of Smad 2, Smad 3, and Smad 4, induction of antagonistic Smads (Smad 6 and Smad 7), and promoter activities of two target genes, plasminogen activator inhibitor type 1 (PAI-1) and p15INK4B. In human cell lines HCC-M and HCC-T, TGF-beta accelerates their proliferation. Smad 2 was activated constitutively by an autocrine mechanism, because in the absence of exogenous TGF-beta, a high level of Smad 2 phosphorylation, induction of PAI-1 transcripts, and nuclear localization of Smad 2 were observed. This constitutive activation of Smad 2 was, at least in part, attributable to the lack of induction of antagonistic Smads by TGF-beta. However, Smads activated by tumor-derived TGF-beta constantly suppressed p151NK4B expression. In addition, 3 of 10 human HCC tissues showed nuclear localization of Smad 2 and low mRNA levels of p15INK4B and antagonistic Smads but a high level of PAI-1. Our observations suggest that this constant suppression of the p15INK4B gene could be involved in the malignant progression of HCC.