Transforming growth factor-β (TGF-β) has been shown to play an essential role in establishing immunological tolerance, yet recent studies have revealed the pro-inflammatory roles of TGF-β in inflammatory responses. TGF-β induces Foxp3-positive regulatory T cells (iTregs), while in the presence of IL-6, it induces pathogenic IL-17 producing Th17 cells. TGF-β inhibits the proliferation of T cells as well as cytokine production via Foxp3-dependent and independent mechanisms. On the one hand, little is known about molecular mechanisms involved in immune suppression via TGF-β; however, recent studies suggest that Smad2 as well as Smad3 play essential roles in Foxp3 induction and cytokine suppression, whereas Th17 differentiation is promoted via the Smad-independent pathway. Mutual suppression of signaling between TGF-β and inflammatory cytokines has been shown to be necessary for the balance of immunity and tolerance.