The objective of this study was to better understand the role of transforming growth factor-beta (TGF-beta) and its primary signaling protein Smad3 in the development of intimal hyperplasia. Male Sprague-Dawley rats underwent left carotid balloon injury followed by intra-arterial infection with adenovirus-expressing Smad3 (AdSmad3). In uninfected injured arteries, endogenous Smad3 was upregulated with the expression peaking at 14 days. Moreover, in arteries infected with AdSmad3, we observed an enhancement of intimal hyperplasia and increased vascular smooth muscle cell (VSMC) proliferation. The novel finding, that TGF-beta/Smad3 stimulated rather than inhibited VSMC proliferation, was confirmed in cultured VSMCs infected with AdSmad3 and treated with TGF-beta. To identify the mechanism underlying TGF-beta/Smad3-mediated VSMC proliferation, we studied the cyclin-dependent kinase inhibitor p27. Although the upregulation of Smad3 in VSMCs had no significant effect on total p27 levels, Smad3 did stimulate the phosphorylation of p27 at serine-10 as well as the nuclear export of p27, events associated with cell proliferation. Furthermore, serine-10-phosphorylated p27 was also increased in AdSmad3-infected injured rat carotid arteries, demonstrating the existence of this same mechanism in vivo. In conclusion, our findings identify a novel mechanism for the effect of TGF-beta on intimal hyperplasia. In the presence of elevated levels of Smad3 that develop in response to injury, TGF-beta stimulates smooth muscle cell proliferation through a mechanism involving the phosphorylation and nuclear export of p27.