Transforming growth factor (TGF)-β₁ is a pleiotropic growth factor with known inhibitory effects on immune cell activation. However, the specific mechanism(s) and in vivo significance of the effectors of TGF-β₁ modulation in the context of vascular inflammation are not well characterized. The chemokine monocyte chemoattractant protein (MCP)-1 is critical for the recruitment of macrophages in inflammatory disease states. In this study, we provide definitive evidence that the ability of TGF-β₁ to inhibit MCP-1 expression is mediated via its effector Smad3. Adenoviral overexpression of Smad3 potently repressed inducible expression of endogenous MCP-1. Conversely, TGF-β₁ inhibition of cytokine-mediated induction of MCP-1 expression was completely blocked in Smad3-deficient macrophages. Consistent with this impaired response, cardiac allografts in Smad3-deficient mice developed accelerated intimal hyperplasia with increased infiltration of adventitial macrophages expressing MCP-1. Previous studies show that MCP-1 inducibility is regulated by an AP-1 complex composed of c-Jun/c-Fos heterodimers. We demonstrate that the inhibitory effect of Smad3 occurs via a novel antagonistic effect of Smad3 on AP-1 DNA-protein binding and activity. Thus, Smad3 plays an essential role in modulating vascular inflammation characteristic of transplant-associated arteriopathy, is important in regulating MCP-1 expression, and plays a critical role in the ability of TGF-β₁ to repress stimuli from a major inflammatory signaling pathway.