The FLRG gene encodes a secreted glycoprotein that binds to activin and is highly homologous to follistatin, an activin ligand. We cloned the promoter region of the human FLRG gene, and defined the minimal region necessary for transcription activation in a reporter-system assay. We showed that the fragment between positions -130 and +6, which consists of multiple consensus Sp1-binding sites, is required for the constitutive expression of the FLRG gene. We demonstrate here that FLRG mRNA expression is rapidly induced by TGFbeta or by transfection with Smad protein expression vectors in human HepG2 cells. We investigated the transcription-regulation mechanism of FLRG expression in HepG2 cells following treatment with TGFbeta. By deletion and point-mutation analysis of the FLRG promoter, we identified a Smad-binding element involved in the TGFbeta-inducible expression of the FLRG gene. Moreover, transactivation of the FLRG promoter by TGFbeta was compromised by dominant-negative mutants of Smad3 and Smad4 proteins. In addition, gel electrophoresis mobility-shift assays demonstrated the specific interaction of Smad3 and Smad4 proteins with the Smad-binding element consensus motif found in the FLRG promoter. Taken together, our data imply that Smad proteins participate in the regulation of expression of FLRG, a new target of TGFbeta transcription activation.