TGF-beta has been shown to play a critical role in anti-inflammation; however, the signaling mechanisms of TGF-beta in anti-inflammatory response remains largely unclear. This study reported that mice that overexpress latent TGF-beta1 on skin are protected against renal inflammation in a model of obstructive kidney disease and investigated the signaling mechanism of TGF-beta1 in inhibition of renal inflammation in vivo and in vitro. Seven days after urinary obstruction, wild-type mice developed severe renal inflammation, including massive T cell and macrophage infiltration and marked upregulation of IL-1beta, TNF-alpha, and intercellular adhesion molecule-1 (all P < 0.001). Surprising, renal inflammation was prevented in transgenic mice. This was associated with an increase in latent TGF-beta1 in circulation (a 10-fold increase) and renal tissues (a 2.5-fold increase). Further studies showed that inhibition of renal inflammation in TGF-beta1 transgenic mice was also associated with a marked upregulation of renal Smad7 and IkappaBalpha and a suppression of NF-kappaB activation in the diseased kidney (all P < 0.01). These in vivo findings suggested the importance of TGF-beta-NF-kappaB cross-talk signaling pathway in regulating renal inflammation. This was tested in vitro in a doxycycline-regulated Smad7-expressing renal tubular cell line. Overexpression of Smad7 was able to upregulate IkappaBalpha directly in a time- and dose-dependent manner, thereby inhibiting NF-kappaB activation and NF-kappaB-driven inflammatory response. In conclusion, latent TGF-beta may have protective roles in renal inflammation. Smad7-mediated inhibition of NF-kappaB activation via the induction of IkBalpha may be the central mechanism by which latent TGF-beta prevents renal inflammation.