As a prototype of the TGF-β superfamily cytokines, TGF-β is well known for its diverse roles in embryogenesis and adult tissue homeostasis. TGF-β evokes cellular responses by signaling mainly through cell membrane receptors and transcription factor R-Smads and Co-Smad (Smad4), while an inhibitory Smad, Smad7, acts as a critical negative regulator of TGF-β signaling. Smad7 antagonizes TGF-β signaling by regulating the stability or activity of the receptors or blocking the DNA binding of the functional R-Smad-Smad4 complex in the nucleus. However, the function of Smad7 in the nucleus is not fully understood. Yin Yang 1 (YY1) is a ubiquitously expressed transcription factor with multiple functions. It has been reported that YY1 can inhibit Smad-dependent transcriptional responses and TGF-β/BMP-induced cell differentiation independently of its DNA binding ability. In this study, we found that Smad7 interacts with YY1 and the interaction is attenuated by TGF-β signaling. Reporter assays and target gene expression analyses revealed that Smad7 and YY1 act in concert to inhibit TGF-β-induced transcription in the nucleus. Furthermore, Smad7 could enhance the interaction of YY1 with the histone deacetylase HDAC1. Consistently, YY1 and HDAC1 augmented the transcription repression activity of Smad7 in Gal4-luciferase reporter analysis. Therefore, our findings define a novel mechanism of Smad7 and YY1 to antagonize TGF-β signaling.