Transforming growth factor-beta (TGF-beta) is a potent inhibitor of cell proliferation. This study investigated whether overexpression of Smad7, which blocks TGF-beta-induced activation of Smad2/3, could prevent the suppression of regeneration of small-for-size liver grafts. Rats were intravenously given adenoviruses (2 x 10(10) pfu/rat) carrying the LacZ gene or the Smad7 gene (Ad-Smad7) 3 days prior to liver harvesting. Half-size livers were implanted into recipients of the same weight or twice the donor weight, and this resulted in half-size or quarter-size liver grafts. Cell proliferation, detected by 5-bromo-2'-deoxyuridine (BrdU) incorporation, increased to 23% in half-size grafts at 38 hours after implantation but was only 4% in quarter-size grafts. Graft weight did not increase after 38 hours in full-size and quarter-size grafts but increased 28% in half-size grafts. Ad-Smad7 restored BrdU labeling to 32%, and the graft weight increased to 43% in quarter-size grafts. Serum total bilirubin increased approximately 30-fold after the implantation of quarter-size grafts. Ad-Smad7 blunted hyperbilirubinemia by 80%. The basal hepatic TGF-beta(1) level was 7 ng/g of liver wet weight, and this increased to 30 ng/g at 1.5 hours after the transplantation of full-size grafts but decreased rapidly afterwards. After the transplantation of quarter-size grafts, however, TGF-beta(1) progressively increased to 159 ng/g in 38 hours. Nuclear phosphorylated Smad2/3 was barely detectable, and p21Cip1 expression was negligible in full-size grafts but increased markedly in quarter-size grafts. Ad-Smad7 blocked Smad2/3 activation and expression of p21Cip1. Together, these data show that TGF-beta is responsible, at least in part, for the defective liver regeneration in small-for-size grafts by activating the Smad signaling pathway.