Hepatocellular carcinoma (HCC) usually arises from hepatic fibrosis caused by chronic inflammation. In chronic liver damage, hepatic stellate cells undergo progressive activation to myofibroblasts (MFB), which are important extracellular-matrix-producing mesenchymal cells. Concomitantly, perturbation of transforming growth factor (TGF)-β signaling by pro-inflammatory cytokines in the epithelial cells of the liver (hepatocytes) promotes both fibrogenesis and carcinogenesis (fibro-carcinogenesis). Insights into fibro-carcinogenic effects on chronically damaged hepatocytes have come from recent detailed analyses of the TGF-β signaling process. Smad proteins, which convey signals from TGF-β receptors to the nucleus, have intermediate linker regions between conserved Mad homology (MH) 1 and MH2 domains. TGF-β type I receptor and pro-inflammatory cytokine-activated kinases differentially phosphorylate Smad2 and Smad3 to create phosphoisoforms phosphorylated at the COOH-terminal, linker, or both (L/C) regions. After acute liver injury, TGF-β-mediated pSmad3C signaling terminates hepatocytic proliferation induced by the pro-inflammatory cytokine-mediated mitogenic pSmad3L pathway; TGF-β and pro-inflammatory cytokines synergistically enhance collagen synthesis by activated hepatic stellate cells via pSmad2L/C and pSmad3L/C pathways. During chronic liver disease progression, pre-neoplastic hepatocytes persistently affected by TGF-β together with pro-inflammatory cytokines come to exhibit the same carcinogenic (mitogenic) pSmad3L and fibrogenic pSmad2L/C signaling as do MFB, thereby accelerating liver fibrosis while increasing risk of HCC. This review of Smad phosphoisoform-mediated signals examines similarities and differences between epithelial and mesenchymal cells in acute and chronic liver injuries and considers Smad linker phosphorylation as a potential target for the chemoprevention of fibro-carcinogenesis.