We have previously shown that transforming growth factor (TGF)-beta1, a crucial molecule in metastatic bone cancer, stimulates collagenase-3 expression in the human breast cancer cell line, MDA-MB231. To understand the molecular mechanisms responsible for TGF-beta1 response on collagenase-3 promoter activity, a functional analysis of the promoter region of the collagenase-3 gene was carried out, and we identified the distal runt domain (RD) and proximal RD/activator protein-1 (AP-1) sites as necessary for full TGF-beta1-stimulated collagenase-3 promoter activity. Gel shift, real time reverse transcriptase-PCR, and Western blot analyses showed increased levels of c-Jun, JunB, and Cbfa1/Runx2 upon TGF-beta1 treatment in MDA-MB231 cells. Co-immunoprecipitation in vitro studies identified no physical interaction between JunB and Cbfa1/Runx2, whereas Smad3 interacted with both. Chromatin immunoprecipitation experiments confirmed interaction of Smad3 with JunB and Cbfa1/Runx2. Under basal conditions, Cbfa1/Runx2 bound to both the proximal RD/AP-1 and distal RD sites. In response to TGF-beta1, Cbfa1/Runx2 was seen only at the distal RD site, whereas JunB occupied the proximal RD/AP-1 site. An assemblage of Smad3, JunB, and Cbfa1/Runx2 at the distal RD site of the collagenase-3 promoter occurred in response to TGF-beta1 in MDA-MB231 cells. Co-transfection of Smad3, JunB, and Cbfa1/Runx2 constructs along with a constitutively active TGF-beta type I receptor construct identified functional interaction of these proteins and transcriptional activation of the collagenase-3 gene by TGF-beta1. Taken together, our results suggest that TGF-beta1 stimulated JunB and Cbfa1/Runx2 to bind to their respective DNA consensus sites and that Smad3 is likely to stabilize their interaction to confer functional TGF-beta1-stimulation of collagenase-3 expression in MDA-MB231 cells.