Chronic allograft rejection manifested as obliterative bronchiolitis (OB) remains the single greatest impediment to long-term survival after lung transplantation. Transforming growth factor-beta1 (TGF-beta1) has been implicated in the tissue remodeling response associated with OB. Therefore, its intracellular signal transducer, Smad3, is a prime target of investigation. Herein, we examine the role of TGF-beta1, through Smad3, in the development of OB using heterotopic tracheal transplantation in wild-type and Smad3-null mice. TGF-beta1 was detectable within infiltrating mononuclear cells early after transplantation. Later it was detected in fibroblasts and in the connective tissue accumulating within the lumen and the airway wall of the transplanted allografts. Connective tissue growth factor had a similar time and tissue distribution. Nuclear detection of Smad3 and phosphorylated Smads within intraluminal fibroblasts coincided with increased intraluminal deposition of fibronectin and collagen. When transplanted into Smad3-null mice, allografts failed to organize the intraluminal exudates despite fibroblast accumulation and showed reduced fibronectin and collagen deposition. In culture, Smad3-deficient fibroblasts expressed reduced fibronectin in response to TGF-beta1 compared to wild-type cells. Together, these studies suggest that the TGF-beta signal transducer, Smad3, is required for the development of experimental OB in transplanted tracheas.