We recently reported that hydrogen peroxide-inducible clone-5 (Hic-5, also named androgen receptor-associated protein 55) can bind to the transforming growth factor-beta (TGF-beta)-signaling regulator Smad3, thereby inhibiting certain Smad3-dependent TGF-beta responses. We now show that Hic-5 can also control TGF-beta responses through an alternative mechanism involving Smad7, a key negative regulator of TGF-beta signaling. Hic-5 binds directly to Smad7. This interaction requires the LIM3 domain of Hic-5, and enhances TGF-beta signaling through causing loss of Smad7 protein but not mRNA. Enforced expression of Hic-5 reverses the ability of Smad7 to suppress TGF-beta-induced phosphorylation of Smads 2 and 3 and activation of the plasminogen activator inhibitor-1 promoter (in NRP-154 and PC3 prostate carcinoma and WPMY-1 prostate myofibroblast cell lines). Lentiviral-mediated small-hairpin RNA silencing of endogenous Hic-5 reduced TGF-beta responses in PC3 and WPMY-1 cells. Further work suggests that the level of Smad7 is modulated by its physical interaction with Hic-5 and targeted to a degradation pathway not likely to be proteasomal. Our findings support that Hic-5 functions as a cell-type-specific activator of TGF-beta signaling through its ability to physically interact with and neutralize Smad7.