SMAD proteins can mediate transforming growth factor beta (TGF-beta)-inducible transcriptional responses. Whereas SMAD can recognize specific DNA sequences, it is usually recruited to a promoter through interaction with a DNA-binding partner. In an effort to search for TGF-beta-inducible genes, we used a subtractive screening method and identified human Smad7, which can antagonize TGF-beta signaling and is rapidly up-regulated by TGF-beta. In this report, we show that TGF-beta can stabilize Smad7 mRNA and activate Smad7 transcription. The Smad7 promoter is the first TGF-beta responsive promoter identified in vertebrates that contains the 8-bp palindromic SMAD-binding element (SBE), an optimal binding site previously identified by a PCR-based selection from random oligonucleotides by using recombinant Smad3 and Smad4. We demonstrate that on TGF-beta treatment, endogenous SMAD complex can bind to a Smad7 promoter DNA as short as 14 or 16 bp that contains the 8-bp SBE in gel mobility shift and supershift assays. Our studies provide strong evidence that SMAD proteins can bind to a natural TGF-beta responsive promoter independent of other sequencespecific transcription factors. We further show that, whereas recombinant Smad3 binds to the SBE, endogenous or even transfected Smad3 cannot bind to the SBE in the absence of Smad4. These findings have important implications in the identification of target genes of the TGF-beta/SMAD signaling pathways.