Transforming growth factor beta (TGF-beta) suppresses epithelial cell growth. We have identified a new target gene of the TGF-beta/Smad pathway, Meox2, encoding the homeodomain transcription factor that is known to regulate endothelial cell proliferation and muscle development. Knockdown of endogenous Meox2 by RNA interference prevented the TGF-beta1-induced cytostatic response. Moreover, ectopic Meox2 suppressed epithelial cell proliferation in cooperation with TGF-beta1, and mediated induction of the cell cycle inhibitor gene p21. Transcriptional induction of p21 by Meox2 required a distal region of the p21 promoter that spans the p53-binding site. We show that Meox2 can form protein complexes with Smads leading to cooperative regulation of p21 gene expression. Finally, we found that in cell models that undergo both cell cycle arrest and epithelial-mesenchymal transition (EMT), ectopic Meox2 failed to induce EMT and inhibited the proper EMT response to TGF-beta. Thus, Meox2 is primarily involved in the TGF-beta tumor suppressor pathway.