Hyperoxic rats treated with inosine during oxygen exposure have increased levels of active transforming growth factor (TGF)-beta in the bronchoalveolar lavage (BAL), yet alveolar epithelial type 2 cells (AEC2) isolated from these animals demonstrate less hyperoxia-induced DNA damage and increased expression of active Smad2. To determine whether TGF-beta1 signaling per se protected AEC2 against hyperoxic damage, freshly isolated AEC2 from hyperoxic rats were incubated with TGF-beta1 for 24 h and assayed for DNA damage by fluorescein-activated cell sorter analysis of TdT-mediated dUTP nick end labeling. TGF-beta1 was protective over a concentration range similar to that in BAL of inosine-treated hyperoxic animals (50-5,000 pg/ml). TGF-beta1 also augmented hyperoxia-induced DNA repair activity and cell migration, stimulated autocrine secretion of fibronectin, accelerated closure of a monolayer scratch wound, and restored hyperoxia-depleted VEGF secretion by AEC2 to normoxic levels. The TGF-beta receptor type I activin-like kinase-4, -5, and -7 inhibitor peptide SB-505124 abolished the protective effect of TGF-beta on hyperoxic DNA damage and increased TdT-mediated dUTP nick end labeling in normoxic cells. These data suggest that endogenous TGF-beta-mediated Smad signaling is required for AEC2 homeostasis in vitro, while exogenous TGF-beta1 treatment of hyperoxia-damaged AEC2 results in a cell that is equipped to survive, repair, migrate, secrete matrix, and induce new blood vessel formation more efficiently than AEC2 primed by hyperoxia alone.