Chronic obstructive pulmonary disease (COPD) is characterized by inflammatory immune response, emphysematous destruction of alveolar structures and obstruction in the small conducting airways. Transforming growth factor (TGF)-beta is involved in the maintenance of normal lung tissue homeostasis as a regulator of extracellular proteolysis, tissue repair and inflammatory functions. This study was undertaken to characterize TGF-beta signaling in pathologically distinct areas of COPD lungs. Using Smad2 phosporylation (P-Smad2) as an indicator of TGF-beta signaling activity we analyzed COPD patient tissues and controls by immunohistochemistry. Emphysematous lung showed significantly reduced P-Smad2 immunoreactivity both in the alveolar and bronchiolar epithelium, which is evidence of reduced TGF-beta signaling activity. On the contrary, in the thickened peribronchial areas there was an increase in the amount of P-Smad2 positive cells. Isolated COPD lung fibroblasts also displayed increased TGF-beta signaling and target gene expression suggesting that the fibroblasts are characteristic to the small airway disease phenotype. Our results indicate that TGF-beta signaling activity is differentially regulated in distinct areas of COPD lung and likely contributes to both emphysematous development and small airway obstruction.