Kaposi's sarcoma-associated herpesvirus, also called human herpesvirus 8, has been implicated in the pathogenesis of Kaposi's sarcoma, body cavity-based primary effusion lymphoma, and some forms of multicentric Castleman's disease. The Kaposi's sarcoma-associated herpesvirus open reading frame K9 encodes viral IFN regulatory factor 1 (vIRF1), which functions as a repressor of IFN-mediated signal transduction. vIRF1 expression in NIH 3T3 cells leads to transformation and consequently induces malignant fibrosarcoma in nude mice, suggesting that vIRF1 is a strong oncoprotein. Here, we show that vIRF1 inhibited transforming growth factor-beta (TGF-beta) signaling via its targeting of Smad proteins. vIRF1 suppressed TGF-beta-mediated transcription and growth arrest. vIRF1 directly interacted with both Smad3 and Smad4, resulting in inhibition of their transactivation activity. Studies using vIRF1 deletion mutants showed that the central region of vIRF1 was required for vIRF1 association with Smad3 and Smad4 and that this region was also important for inhibition of TGF-beta signaling. In addition, we found that vIRF1 interfered with Smad3-Smad4 complex formation and inhibited Smad3/Smad4 complexes from binding to DNA. These results indicate that vIRF1 inhibits TGF-beta signaling via interaction with Smads. In addition, the data indicate the TGF-beta pathway is an important target for viral oncoproteins.