Transforming growth factor beta 1 (TGF-beta 1) exerts a positive effect on the transcription of genes coding for several extracellular matrix-related products, including collagen I. We have previously identified a strong TGF-beta 1-responsive element (TbRE) in the upstream promoter sequence of the alpha 2(I) collagen (COL1A2) gene. Our experiments have shown that TGF-beta 1 stimulates COL1A2 transcription by increasing binding of an Sp1-containing complex (TbRC) to the TbRE. They have also suggested that the change occurs via posttranslational modification of a protein(s) directly or indirectly interacting with Sp1. Here, we provide evidence showing that tyrosine dephosphorylation of nuclear proteins mimics the stimulation of COL1A2 transcription by the TGF-beta 1-activated signaling pathway. Preincubation of nuclear extracts with protein tyrosine phosphatase (PTPase) but not with protein phosphatase type 2A (PP2A), a serine/threonine phosphatase, enhanced binding of the TbRC to the same degree as culturing cells in TGF-beta 1. Consistent with these in vitro findings, genistein, a tyrosine kinase inhibitor, led to markedly increased COL1A2 gene expression, whereas sodium orthovanadate, a tyrosine phosphatase inhibitor, decreased it substantially. These results were supported by transfection experiments showing that genistein and sodium orthovanadate have opposite effects on TbRE-mediated transcription. Moreover, nuclear proteins isolated from genistein-treated cells were found to interact with the TbRE significantly more than those from untreated cells. Furthermore, pretreatment of cells with sodium orthovanadate virtually abrogated nuclear protein binding to the TbRE, but not to a neighboring cis-acting element unresponsive to TGF-beta 1. The results of this study, therefore, provide the first correlation between tyrosine dephosphorylation, increased binding of a transcriptional complex, and TGF-beta 1 stimulation of gene expression.