The interaction between epithelial cancer cells and cancer-associated fibroblasts (CAFs) has a major role in cancer progression and eventually in metastasis. In colorectal cancer (CRC), CAFs are present in high abundance, but their origin and functional interaction with epithelial tumor cells has not been elucidated. In this study we observed strong activation of the transforming growth factor-β (TGF-β)/Smad signaling pathway in CRC CAFs, accompanied by decreased signaling in epithelial tumor cells. We evaluated the TGF-β1 response and the expression of target genes including matrix metalloproteinases (MMPs) and plasminogen activator inhibitor (PAI)-1 of various epithelial CRC cell lines and primary CAFs in vitro. TGF-β1 stimulation caused high upregulation of MMPs, PAI-1 and TGF-β1 itself. Next we showed that incubation of CAFs with conditioned medium (CM) from epithelial cancer cells led to hyperactivation of the TGF-β signaling pathway, enhanced expression of target genes like PAI-1, and the expression of α-smooth muscle actin (α-SMA). We propose that the interaction of tumor cells with resident fibroblasts results in hyperactivated TGF-β1 signaling and subsequent transdifferentiation of the fibroblasts into α-SMA-positive CAFs. In turn this leads to cumulative production of TGF-β and proteinases within the tumor microenvironment, creating a cancer-promoting feedback loop.