Activation of the renal transforming growth factor-beta (TGF-beta) system likely mediates the excess production of extracellular matrix in the diabetic kidney. To establish the role of the TGF-beta system in type 2 diabetic nephropathy, we examined the intrarenal localization and expression of the TGF-beta1 isoform, the TGF-beta type II receptor, and the Smad signaling pathway in the 16-week-old db/db mouse, a genetic model of type 2 diabetes that exhibits mesangial matrix expansion, glomerular basement membrane thickening, and renal insufficiency that closely resemble the human disease. Compared with its nondiabetic db/m littermate, the db/db mouse showed significantly increased TGF-beta1 mRNA expression by in situ hybridization in both glomerular and tubular compartments. Likewise, TGF-beta1 protein, by immunohistochemical staining, was increased in both renal compartments, but the fractional expression of TGF-beta1 protein was less than that of the mRNA in the glomerulus. In situ hybridization and immunohistochemical staining for the TGF-beta type II receptor revealed concordant and significant increases of both mRNA and protein in the glomerular and tubular compartments of diabetic animals. Finally, immunohistochemistry showed preferential accumulation of Smad3 in the nuclei of glomerular and tubular cells in diabetes. The complementary technique of Southwestern histochemistry using a labeled Smad-binding element demonstrated increased binding of nuclear proteins to Smad-binding element, indicating active signaling downstream of the TGF-beta stimulus. We therefore propose that the TGF-beta system is up-regulated at the ligand, receptor, and signaling levels throughout the renal cortex in this animal model of type 2 diabetes. Our findings suggest that the profibrotic effects of TGF-beta may underlie the progression to glomerulosclerosis and tubulointerstitial fibrosis that characterize diabetic nephropathy.