The cytokine transforming growth factor beta (TGFbeta) has strong antiproliferative activity in most normal cells but contributes to tumor progression in the later stages of oncogenesis. It is not fully understood which TGFbeta target genes are causally involved in mediating its cytostatic activity. We report here that suppression of the TGFbeta target gene encoding plasminogen activator inhibitor-1 (PAI-1) by RNA interference leads to escape from the cytostatic activity of TGFbeta both in human keratinocytes (HaCaTs) and primary mouse embryo fibroblasts. Consistent with this, PAI-1 knock-out mouse embryo fibroblasts are also resistant to TGFbeta growth arrest. Conversely, we show that ectopic expression of PAI-1 in proliferating HaCaT cells induces a growth arrest. PAI-1 knockdown does not interfere with canonical TGFbeta signaling as judged by SMAD phosphorylation and induction of bona fide TGFbeta target genes. Instead, knockdown of PAI-1 results in sustained activation of protein kinase B. Significantly, we find that constitutive protein kinase B activity leads to evasion of the growth-inhibitory action of TGFbeta. Our data are consistent with a model in which induction of PAI-1 by TGFbeta is critical for the induction of proliferation arrest.