Transforming growth factor (TGF)-beta is critically involved in the activation of hepatic stellate cells (HSCs) that occurs during the process of liver damage, for example, by alcohol, hepatotoxic viruses, or aflatoxins. Overexpression of the TGF-beta antagonist Smad7 inhibits transdifferentiation and arrests HSCs in a quiescent stage. Additionally, bile duct ligation (BDL)-induced fibrosis is ameliorated by introducing adenoviruses expressing Smad7 with down-regulated collagen and alpha-smooth muscle actin (alpha-SMA) expression. The aim of this study was to further characterize the molecular details of TGF-beta pathways that control the transdifferentiation process. In an attempt to elucidate TGF-beta target genes responsible for fibrogenesis, an analysis of Smad7-dependent mRNA expression profiles in HSCs was performed, resulting in the identification of the inhibitor of differentiation 1 (Id1) gene. Ectopic Smad7 expression in HSCs strongly reduced Id1 mRNA and protein expression. Conversely, Id1 overexpression in HSCs enhanced cell activation and circumvented Smad7-dependent inhibition of transdifferentiation. Moreover, knock-down of Id1 in HSCs interfered with alpha-SMA fiber formation, indicating a pivotal role of Id1 for fibrogenesis. Treatment of HSCs with TGF-beta1 led to increased Id1 protein expression, which was not directly mediated by the ALK5/Smad2/3, but the ALK1/Smad1 pathway. In vivo, Id1 expression and Smad1 phosphorylation were co-induced during fibrogenesis. In conclusion, Id1 is identified as TGF-beta/ALK1/Smad1 target gene in HSCs and represents a critical mediator of transdifferentiation that might be involved in hepatic fibrogenesis. Supplementary material for this article can be found on the HEPATOLOGY website (http://interscience.wiley.com/jpages/0270-9139/suppmat/index.html).