Mechanisms of gene repression by transforming growth factor-beta (TGF-beta) are not well understood. TGF-beta represses transcription of pulmonary surfactant protein-B gene in lung epithelial cells. Repression is mediated by SMAD3 through interactions with NKX2.1 and FOXA1, two key transcription factors that are positive regulators of SpB transcription. In this study, we found that SMAD3 interacts through its MAD domains, MH1 and MH2 with NKX2.1 and FOXA1 proteins. The sites of interaction on NKX2.1 are located within the NH2 and COOH domains, known to be involved in transactivation function. In comparison, weaker interaction of FOXA1 winged helix, and the NH(2)-terminal domains was documented with SMAD3. Both in vitro studies and in vivo ChIP assays show that interaction of SMAD3 MH1 and MH2 domains with NKX2.1 and FOXA1 results in reduced binding of NKX2.1 and FOXA1 to their cognate DNA-binding sites, and diminished promoter occupancy within the SpB promoter. Thus, these studies reveal for the first time a mechanism of TGF-beta-induced SpB gene repression that involves interactions between specific SMAD3 domains and the corresponding functional sites on NKX2.1 and FOXA1 transcription factors.