TGF-β is known to influence tumour progression. Here we report an additional role of Smad3 in the tumour microenvironment regulating cancer progression. Deletion or inhibition of Smad3 in the tumour microenvironment suppresses tumour growth, invasion and metastasis in two syngeneic mouse tumour models. Smad3-/- bone marrow gives rise to an expanded NK cell population with enhanced tumour-suppressive activities in vivo, and promotes differentiation of NK cells ex vivo. We identify E4BP4/NFIL3 as a direct Smad3 target gene critical for NK cell differentiation. Smad3 suppresses transcription of IFN-γ via E4BP4 in a T-bet independent manner. Therefore disruption of Smad3 enhances both the E4BP4-mediated NK cell differentiation and anti-cancer effector functions in vivo and in vitro. Furthermore, systemic treatment with a Smad3 inhibitor SIS3 effectively suppresses cancer progression. In summary, suppression of NK cell-mediated immunosurveillance via the Smad3-E4BP4 axis contributes to cancer progression. We propose targeting Smad3-dependent tumour microenvironment may represent an effective anti-cancer strategy.