Activation of transforming growth factor-beta (TGF-beta) receptors triggers phosphorylation of Smad2 and Smad3. After binding to Smad4, the complex enters the nucleus and interacts with other transcription factors to activate gene transcription. Unlike other Smads, Smad7 inhibits phosphorylation of Smad2 and Smad3, and its transcription is induced by TGF-beta, suggesting a negative feedback loop. Here, we show that TFE3 and Smad3 synergistically mediate TGF-beta-induced transcription from the Smad7 promoter by binding to an E-box and two adjacent Smad binding elements (SBEs), respectively. A precise 3-base pair spacer between one SBE and the E-box is essential. Previously, we showed that a similar arrangement between a SBE and an E-box of an element is essential for TGF-beta-dependent transcription of the plasminogen activator inhibitor-1 gene (PAI-1) and that TGF-beta-induced phosphorylation of Smad3 triggers its association with TFE3. Thus, TFE3-Smad3 response elements may represent a common target for TGF-beta-induced gene expression.