Select signaling pathways have emerged as key players in regulating smooth muscle gene expression during myofibroblast and smooth muscle differentiation, an event that is important for wound healing and vascular remodeling. These include the transforming growth factor-beta (TGF-beta1) signaling cascade, which has been assigned multiple roles in these cells, and the Notch pathway. Notch family members have been implicated in governing cell fate in a variety of cells; however, the mechanisms are not well understood. We sought to explore how these prominent signaling mediators regulate differentiation, and in particular, how they might converge to control the transcription of smooth muscle genes. Using TGF-beta1 to induce the differentiation of 10T1/2 fibroblasts, we investigated the specific function of Notch3. Overexpression of activated Notch3 caused repression of TGF-beta1-induced smooth muscle-specific genes, whereas knockdown of Notch3 by small interfering RNA did not convincingly alter their expression. Surprisingly, the addition of TGF-beta1 caused a significant decrease in Notch3 RNA and protein and a reciprocal increase in Hes1 gene transcription. The repression of Notch3 was mediated by SMAD activity and p38 mitogen-activated protein (MAP) kinase, whereas analysis of the Hes1 promoter revealed direct activation by Smad2 but not Smad3. Furthermore, the Hes1 repressor protein augmented Smad3 transactivation of the SM22alpha promoter. These results offer a novel mechanism by which TGF-beta1 promotes the expression of smooth muscle differentiation genes through the inhibition of Notch3 and activation of Hes1.