Transforming growth factor β (TGF-β) regulates many biological processes, and aberrant TGF-β signaling is implicated in tumor development. Smad3 is a central component of the TGF-β signaling pathway, and once activated, Smad3 forms complexes with Smad4 or other receptor-regulated Smads, which accumulate in the nucleus to transcriptionally regulate TGF-β target genes. Because Smad3 plays a significant role in mediating the activities of TGF-β, we examined its regulation during tumor development using a well characterized tumor model. We demonstrate that Smad3 levels are dramatically reduced in the tumorigenic cell line transformed with activated H-Ras compared with the normal parental epithelial cells. Interestingly, we also observe a cell cycle-dependent regulation of Smad3 in both cell types, with high Smad3 levels in quiescent cells and a significant drop in Smad3 protein levels in proliferating cells. Smad3 is regulated at themRNAlevel and at the level of protein stability. In addition, functional analysis indicates that down-regulation of Smad3 levels is required for the tumor cells to proliferate in the presence of TGF-β, because ectopic expression of Smad3 in the tumorigenic cell line restores the growth inhibitory response to TGF-β. In contrast, expression of high levels of Smad3 did not interfere with the ability of these cells to undergo epithelial to mesenchymal transition upon TGF-β stimulation. Altogether, our results suggest that the level of Smad3 protein is an important determinant of the progression of tumorigenesis. High levels of Smad3 are required for the tumor suppressor activities of TGF-β, whereas lower levels are sufficient for the tumor promoting functions.