Tubulointerstitial fibrosis is the final common result of a variety of progressive injuries leading to chronic renal failure. Transforming growth factor-beta (TGF-beta) is reportedly upregulated in response to injurious stimuli such as unilateral ureteral obstruction (UUO), causing renal fibrosis associated with epithelial-mesenchymal transition (EMT) of the renal tubules and synthesis of extracellular matrix. We now show that mice lacking Smad3 (Smad3ex8/ex8), a key signaling intermediate downstream of the TGF-beta receptors, are protected against tubulointerstitial fibrosis following UUO as evidenced by blocking of EMT and abrogation of monocyte influx and collagen accumulation. Culture of primary renal tubular epithelial cells from wild-type or Smad3-null mice confirms that the Smad3 pathway is essential for TGF-beta1-induced EMT and autoinduction of TGF-beta1. Moreover, mechanical stretch of the cultured epithelial cells, mimicking renal tubular distention due to accumulation of urine after UUO, induces EMT following Smad3-mediated upregulation of TGF-beta1. Exogenous bone marrow monocytes accelerate EMT of the cultured epithelial cells and renal tubules in the obstructed kidney after UUO dependent on Smad3 signaling. Together the data demonstrate that the Smad3 pathway is central to the pathogenesis of interstitial fibrosis and suggest that inhibitors of this pathway may have clinical application in the treatment of obstructive nephropathy.