Transforming growth factor-beta (TGF-beta) is overexpressed at sites of wound repair and in most adenocarcinomas including prostate cancer. In stromal tissues, TGF-beta regulates cell proliferation, phenotype and matrix synthesis. To address mechanisms of TGF-beta action in cancer-associated reactive stroma, we developed prostate stromal cells null for TGF-beta receptor II (TbetaRII) or engineered to express a dominant-negative Smad3 to attenuate TGF-beta signaling. The differential reactive stroma (DRS) xenograft model was used to evaluate altered stromal TGF-beta signaling on LNCaP tumor progression. LNCaP xenograft tumors constructed with TbetaRII null or dominant-negative Smad3 stromal cells exhibited a significant reduction in mass and microvessel density relative to controls. Additionally, decreased cellular fibroblast growth factor-2 (FGF-2) immunostaining was associated with attenuated TGF-beta signaling in stroma. In vitro, TGF-beta stimulated stromal FGF-2 expression and release. However, stromal cells with attenuated TGF-beta signaling were refractory to TGF-beta-stimulated FGF-2 expression and release. Re-expression of FGF-2 in these stromal cells in DRS xenografts resulted in restored tumor mass and microvessel density. In summary, these data show that TGF-beta signaling in reactive stroma is angiogenic and tumor promoting and that this effect is mediated in part through a TbetaRII/Smad3-dependent upregulation of FGF-2 expression and release.