Extensive studies have demonstrated that transforming growth factor-beta (TGF-beta) plays an important role in the progression of renal diseases. TGF-beta exerts its biological functions mainly through its downstream signalling molecules, Smad2 and Smad3. It is now clear that Smad3 is critical for TGF-beta's pro-fibrotic effect, whereas the functions of Smad2 in fibrosis in response to TGF-beta still need to be determined. Our recent studies have demonstrated that Smad signalling is also a critical pathway for renal fibrosis induced by other pro-fibrotic factors, such as angiotensin II and advanced glycation end products (AGE). These pro-fibrotic factors can activate Smads directly and independently of TGF-beta. They can also cause renal fibrosis via the ERK/p38 MAP kinase-Smad signalling cross-talk pathway. In contrast, blockade of Smad2/3 activation by overexpression of an inhibitory Smad7 prevents collagen matrix production induced by TGF-beta, angiotensin II, high glucose and AGE and attenuates renal fibrosis in various animal models including rat obstructive kidney, remnant kidney and diabetic kidney diseases. Results from these studies indicate that Smad signalling is a key and final common pathway of renal fibrosis. In addition, TGF-beta has anti-inflammatory and immune-regulatory properties. Our most recent studies demonstrated that TGF-beta transgenic mice are protected against renal inflammation in mouse obstructive and diabetic models. Upregulation of renal Smad7, thereby blocking NF.kappaB activation via induction of IkappaBalpha, is a central mechanism by which TGF-beta inhibits renal inflammation. In conclusion, TGF-beta signals through Smad2/3 to mediate renal fibrosis, whereas induction of Smad7 inhibits renal fibrosis and inflammation. Thus, targeting Smad signalling by overexpression of Smad7 may have great therapeutic potential for kidney diseases.