Transforming growth factor-beta (TGF-beta), a prototype of multifunctional cytokine, is a key regulator of extracellular matrix (ECM) assembly and remodeling. Specifically, TGF-beta isoforms have the ability to induce the expression of ECM proteins in mesenchymal cells, and to stimulate the production of protease inhibitors that prevent enzymatic breakdown of the ECM. Elevated TGF-beta expression in affected organs, and subsequent deregulation of TGF-beta functions, correlates with the abnormal connective tissue deposition observed during the onset of fibrotic diseases. During the last few years, tremendous progress has been made in the understanding of the molecular aspects of intracellular signaling downstream of the TGF-beta receptors. In particular, Smad proteins, TGF-beta receptor kinase substrates that translocate into the cell nucleus to act as transcription factors, have been studied extensively. The role of Smad3 in the transcriptional regulation of type I collagen gene expression and in the development of fibrosis, demonstrated both in vitro and in animal models with a targeted deletion of Smad3, is of critical importance because it may lead to novel therapeutic strategies against these diseases. This review focuses on the mechanisms underlying Smad modulation of fibrillar collagen expression and how it relates to fibrotic processes.