Transforming growth factor-beta 1 plays a key role in the pathogenesis of pulmonary fibrosis, mediating extracellular matrix (ECM) gene expression through a series of intracellular signaling molecules, including Smad2 and Smad3. We show that Smad3 null mice (knockout (KO)) develop progressive age-related increases in the size of alveolar spaces, associated with high spontaneous presence of matrix metalloproteinases (MMP-9 and MMP-12) in the lung. Moreover, transient overexpression of active TGF-beta 1 in lungs, using adenoviral vector-mediated gene transfer, resulted in progressive pulmonary fibrosis in wild-type mice, whereas no fibrosis was seen in the lungs of Smad3 KO mice up to 28 days. Significantly higher levels of matrix components (procollagen 3A1, connective tissue growth factor) and antiproteinases (plasminogen activator inhibitor-1, tissue inhibitor of metalloproteinase-1) were detected in wild-type lungs 4 days after TGF-beta 1 administration, while no such changes were seen in KO lungs. These data suggest a pivotal role of the Smad3 pathway in ECM metabolism. Basal activity of the pathway is required to maintain alveolar integrity and ECM homeostasis, but excessive signaling through the pathway results in fibrosis characterized by inhibited degradation and enhanced ECM deposition. The Smad3 pathway is involved in pathogenic mechanisms mediating tissue destruction (lack of repair) and fibrogenesis (excessive repair).