Transforming growth factor beta (TGF-beta) is a potent inhibitor of hepatocyte proliferation in vitro and is suggested to be a key negative regulator of liver growth. To directly address the role of TGF-beta signaling in liver regeneration in vivo, the TGF-beta type II receptor gene (Tgfbr2) was selectively deleted in hepatocytes by crossing "floxed" Tgfbr2 conditional knockout mice with transgenic mice expressing Cre under control of the albumin promoter. Hepatocytes isolated from liver-specific Tgfbr2 knockout (R2LivKO) mice were refractory to the growth inhibitory effects of TGF-beta1. The peak of DNA synthesis after 70% partial hepatectomy occurred earlier (36 vs. 48 hours) and was 1.7-fold higher in R2LivKO mice compared with controls. Accelerated S-phase entry by proliferating R2LivKO hepatocytes coincided with the hyperphosphorylation of Rb protein and the early upregulation of cyclin D1 and cyclin E. However, by 120 hours after partial hepatectomy, hepatocyte proliferation was back to baseline in both control and R2LivKO liver. Regenerating R2LivKO liver showed evidence of increased signaling by activin A and persistent activity of the Smad pathway. Blockage of activin A signaling by the specific inhibitor follistatin resulted in increased hepatocyte proliferation at 120 hours, particularly in R2LivKO livers. In conclusion, TGF-beta regulates G(1) to S phase transition of hepatocytes, but intact signaling by TGF-beta is not required for termination of liver regeneration. Increased signaling by activin A may compensate to regulate liver regeneration when signaling through the TGF-beta pathway is abolished, and may be a principal factor in the termination of liver regeneration.