Mesenchymal cells, primarily fibroblasts and myofibroblasts, are the principal matrix-producing cells during pulmonary fibrogenesis. Transforming growth factor (TGF)-beta signaling plays an important role in stimulating the expression of type I collagen of these cells. Bone morphogenetic protein (BMP)-7, a member of the TGF-beta superfamily, has been reported to oppose the fibrogenic activity of TGF-beta1. Here, we have addressed the effects of BMP-7 on the fibrogenic activity of pulmonary myofibroblasts. We first established cell lines from the lungs of transgenic mice harboring the COL1A2 upstream sequence fused to luciferase. They displayed a spindle shape and expressed vimentin and alpha-smooth muscle actin, but not E-cadherin. COL1A2 promoter activity was dose dependently induced by TGF-beta1, which was further augmented by adenoviral overexpression of Smad3, but was downregulated by Smad7. Under the identical condition, adenoviral overexpression of BMP-7 attenuated the TGF-beta1-dependent COL1A2 promoter activity. By immunocytochemistry, the ectopic expression of BMP-7 led to the nuclear localization of phospho-Smad1/5/8 and suppressed that of Smad3. BMP-7 suppressed the expression of mRNAs for COL1A2 and tissue inhibitor of metalloproteinase-2 while increasing those of inhibitors of differentiation (Id) 2 and 3. Ectopic expression of Id2 and Id3 was found to decrease the COL1A2 promoter activity. Finally, BMP-7 and Id2 decreased TGF-beta1-dependent collagen protein secretion. In conclusion, these data demonstrate that BMP-7 antagonizes the TGF-beta1-dependent fibrogenic activity of mouse pulmonary myofibroblastic cells by inducing Id2 and Id3.