Immunologically mediated tissue damage in the gut is associated with increased production of proinflammatory cytokines, which activate the transcription factor NF-kappaB in a variety of different cell types. The mechanisms/factors that negatively regulate NF-kappaB in the human gut and the pathways leading to the sustained NF-kappaB activation in gut inflammation remain to be identified. Pretreatment of normal human intestinal lamina propria mononuclear cells (LPMC) with transforming growth factor-beta1 (TGF-beta1) resulted in a marked suppression of TNF-alpha-induced NF-kappaB p65 accumulation in the nucleus, NF-kappaB binding DNA activity, and NF-kappaB-dependent gene activation. TGF-beta1 also increased IkappaBalpha transcripts and protein in normal LPMC. In marked contrast, treatment of LPMC from patients with inflammatory bowel disease with TGF-beta1 did not reduce TNF-induced NF-kappaB activation due to the overexpression of Smad7. Indeed inhibiting Smad7 by specific antisense oligonucleotides increased IkappaBalpha expression and reduced NF-kappaB p65 accumulation in the nucleus. This effect was due to endogenous TGF-beta1. TGF-beta1 directly stimulated IkappaBalpha promoter transcriptional activity in gut fibroblasts in vitro, and overexpression of Smad7 blocked this effect. These data show that TGF-beta1 is a negative regulator of NF-kappaB activation in the gut and that Smad7 maintains high NF-kappaB activity in gut inflammation by blocking TGF-beta1 signaling.