Transforming Growth Factor-β (TGF-β) and Epidermal Growth Factor (EGF) signaling pathways are both independently implicated as key regulators in tumor formation and progression. Here, we report that the tumor-associated overexpression of epidermal growth factor receptor (EGFR) desensitizes TGF-β signaling and its cytostatic regulation through specific and persistent Stat3 activation and Smad7 induction in vivo. In human tumor cell lines, reduction of TGF-β-mediated Smad2 phosphorylation, nuclear translocation and Smad3 target gene activation were observed when EGFR was overexpressed, but not in cells that expressed EGFR at normal levels. We identified Stat3, which is activated specifically and persistently by overexpressed EGFR, as a key signaling molecule responsible for the reduced TGF-β sensitivity. Stable knockdown of Stat3 using small hairpin RNA(shRNA) in Head and Neck (HN5) and Epidermoid (A431) tumor cell lines resulted in reduced growth compared with control shRNA-transfected cells when grown as subcutaneous tumor xenografts. Furthermore, xenografts with Stat3 knockdown displayed increased Smad3 transcriptional activity, increased Smad2 phosphorylation and decreased Smad7 expression compared with control xenografts in vivo. Consistently, Smad7 mRNA and protein expression was also significantly reduced when EGFR activity was blocked by a specific tyrosine kinase inhibitor, AG1478, or in Stat3 knockdown tumors. Similarly, Smad7 knockdown also resulted in enhanced Smad3 transcriptional activity in vivo. Importantly, there was no uptake of subcutaneous HN5 xenografts with Smad7 knockdown. Taken together, we demonstrate here that targeting Stat3 or Smad7 for knockdown results in resensitization of TGF-β's cytostatic regulation in vivo. Overall, these results establish EGFR/Stat3/Smad7/TGF-β signaling axis driving tumor growth, which can be targeted therapeutically.