Members of the transforming growth factor-β(TGF-β) superfamily mediate a broad range of biological activities by regulating the expression of target genes. Smad proteins play a critical role in this process by binding directly to the promoter elements and/or associating with other transcription factors. TGF-β1 up-regulates several genes transcriptionally through Sp1 binding sites; however, the mechanism of TGF-β induction of gene expression through Sp1 sites is largely unknown. Here we report the identification of a novel 38-base pair TGF-β-responsive element in the human plasminogen activator inhibitor-1 (PAI-1) promoter, which contains two Sp1 binding sites, and is required for TGF-β-induced Smad-dependent transcriptional activation. Three canonical Sp1 binding sites also support strong transcriptional activation by TGF-β and Smads from a minimal heterologous promoter. TGF-β induction of PAI-1 and p21 is blocked by the Sp1 inhibitor mithramycin, implicating Sp1 in the in vivo regulation of these genes by TGF-β. We show that the association between endogenous Sp1 and Smad3 is induced by TGF-β in several cell lines; however, Smad4 shows constitutive interaction with Sp1. These data provide novel insights into the mechanism by which TGF-β up-regulates several gene expression by activating Sp1-dependent transcription through the induction of Smad/Sp1 complex formation.