Transforming growth factor beta1 treatment of keratinocytes results in a suppression of differentiation, an induction of extracellular matrix production, and a suppression of growth. In this study we utilized markers specific for each of these functions to explore the signaling pathways involved in mediating these transforming-growth-factor-beta1-induced activities. In the first instance, we found that the induction of extracellular matrix production (characterized by 3TP-Lux reporter activity) was induced in both keratinocytes and a keratinocyte-derived carcinoma cell line, SCC25, in a dose-dependent manner. Furthermore, transforming growth factor beta1 also suppressed the differentiation-specific marker gene, transglutaminase type 1, in both keratinocytes and SCC25 cells. In contrast, transforming growth factor beta1 inhibited proliferation of keratinocytes but did not cause growth inhibition in the SCC25 cells. Transforming-growth-factor-beta1-induced growth inhibition of keratinocytes was characterized by decreases in DNA synthesis, accumulation of hypophosphorylated Rb, and the inhibition of the E2F:Rb-responsive promoter, cdc2, and an induction of the p21 promoter. When the negative regulator of transforming growth factor beta1 signaling, SMAD7, was overexpressed in keratinocytes it could prevent transforming-growth-factor-beta1-induced activation of the 3TP-Lux and the p21 promoter. SMAD7 could also prevent the suppression of the transglutaminase type 1 by transforming growth factor beta1 but it could not inhibit the repression of the cdc2 promoter. These data indicate that the induction of 3TP-Lux and p21 and the suppression of transglutaminase type 1 are mediated by a different proximate signaling pathway to that regulating the suppression of the cdc2 gene. Combined, these data indicate that the regulation of transforming growth factor beta1 actions are complex and involve multiple signaling pathways.