Transforming growth factor-beta (TGF-beta) signalling is induced in liver as a consequence of damage and contributes to wound healing with transient activation, whereas it mediates fibrogenesis with long-term up-regulation in chronic disease. Smad-dependent TGF-beta effects are blunted by antagonistic Smad7, which is transcriptionally activated as an immediate early response upon initiation of TGF-beta signalling in most cell types, thereby providing negative feedback regulation. Smad7 can be induced by other cytokines, e.g. IFN-gamma, leading to a crosstalk of these signalling pathways. Here we report on a novel mouse strain, denoted S7DeltaE1, with a deletion of exon I from the endogenous smad7 gene. The mice were viable and exhibited normal adult liver architecture. To obtain insight into Smad7-depend-ent protective effects, chronic liver damage was induced in mice by carbon tetrachloride (CCI4) administration. Subsequent treatment, elevated serum liver enzymes indicated enhanced liver damage in mice lacking functional Smad7. CCI4-dependent Smad2 phosphorylation was pronounced in S7DeltaE1 mice and accompanied by increased numbers of alpha-smooth muscle actin positive 'activated' HSCs. There was evidence for matrix accumulation, with elevated collagen deposition as assessed morphometrically in Sirius red stained tissue and confirmed with higher levels of hydroxyproline in S7DeltaE1 mice. In addition, the number of CD43 positive infiltrating lymphocytes as well as of apoptotic hepatocytes was increased. Studies with primary hepatocytes from S7DeltaE1 and wild-type mice indicate that in the absence of functional Smad7 protein, hepatocytes are more sensitive for TGF-beta effects resulting in enhanced cell death. Furthermore, S7DeltaE1 hepatocytes display increased oxidative stress and cell damage in response to CCI4, as measured by reactive oxygen species production, glutathione depletion, lactate dehydrogenase release and lipid peroxidation. Using an ALK-5 inhibitor all investigated CCI4 effects on hepatocytes were blunted, confirming participation of TGF-beta signalling. We conclude that Smad7 mediates a protective effect from adverse TGF-beta signalling in damaged liver, re-iterating its negative regulatory loop on signalling.