Transforming growth factor β (TGF-β) was originally identified by virtue of its ability to induce transformation of the AKR-2B and NRK fibroblasts but was later found to be a potent inhibitor of the growth of epithelial, endothelial, and lymphoid cells. Although the growth-inhibitory pathway of TGF-β mediated by the Smad proteins is well studied, the signaling pathway leading to the transforming activity of TGF-β in fibroblasts is not well understood. Here we show that SnoN, a member of the Ski family of oncoproteins, is required for TGF-β-induced proliferation and transformation of AKR-2B and NRK fibroblasts. TGF-β induces upregulation of snoN expression in both epithelial cells and fibroblasts through a common Smad-dependent mechanism. However, a strong and prolonged activation of snoN transcription that lasts for 8 to 24 h is detected only in these two fibroblast lines. This prolonged induction is mediated by Smad2 and appears to play an important role in the transformation of both AKR-2B and NRK cells. Reduction of snoN expression by small interfering RNA or shortening of the duration of snoN induction by a pharmacological inhibitor impaired TGF-β-induced anchorage-independent growth of AKR-2B cells. Interestingly, Smad2 and Smad3 play opposite roles in regulating snoN expression in both fibroblasts and epithelial cells. The Smad2/Smad4 complex activates snoN transcription by direct binding to the TGF-β-responsive element in the snoN promoter, while the Smad3/Smad4 complex inhibits it through a novel Smad inhibitory site. Mutations of Smad4 that render it defective in heterodimerization with Smad3, which are found in many human cancers, convert the activity of Smad3 on the snoN promoter from inhibitory to stimulatory, resulting in increased snoN expression in cancer cells. Thus, we demonstrate a novel role of SnoN in the transforming activity of TGF-β in fibroblasts and also uncovered a mechanism for the elevated SnoN expression in some human cancer cells.