This study investigated the role of transforming growth factor-beta1 (TGF-beta1)/Smads signaling in the alterations of lung structure and the effect of the exogenous decorin on lung structure modification in streptozotocin (STZ)-induced diabetic rats. Seventy-two Sprague-Dawley rats were evenly divided into four groups: STZ-induced diabetic rats (diabetic control), decorin adenovirus vector (Ad)-treated STZ rats (Ad-DCN), Ad-lacZ-treated STZ rats (Ad-lacZ), and normal controls. At 8, 16, and 28 weeks after STZ treatment, haematoxylin-eosin (H&E) and Masson's trichrome staining were performed to investigate the histological changes of diabetic lungs; Expressions of TGF-beta1 and collagen type IV in the diabetic lung were measured by Western blot and immunohistochemistry. Phosphorylated Smad2 (P-Smad2), one of the major TGF-beta1 receptor substrates, was also detected using Western blot. The histological changes of diabetic lung included obvious inflammatory cell infiltration and moderate expanding of alveolar septum stained as collagen. Immunolabeled collagen type IV increased in the alveolar septa in the diabetic lung. Activities of TGF-beta1/Smads signaling increased in the diabetic lung during the 28 weeks of diabetes (p < 0.05 vs. control), and positive staining of TGF-beta1 was mainly found in the cytoplasm of the infiltrated inflammatory cells. Exogenous decorin effectively suppressed the increased activities of TGF-beta1/Smads signaling and partly attenuated collagen deposits in the alveolar septum. Increased activity of TGF-beta1/Smads signaling might play a critical role in the accumulation of collagen in the diabetic lung. The protective effect of decorin in the diabetic lung is at least partly because of the down-regulation of the TGF-beta1/Smads signaling.