Transforming growth factor beta1 (TGFbeta1) expression is elevated by tumor promoters in the mouse skin, but its role in tumor promotion has not been well defined. To investigate this, we have compared TGFbeta1+/+ and +/- mice in a two-stage skin chemical carcinogenesis protocol. Surprisingly, TGFbeta1+/- mice had fewer number and incidence of benign papillomas, reduced epidermal and tumor cell proliferation and reduced epidermal TGFbeta1 and nuclear p-Smad2 localization in response to the tumor promoter 12-O-tetradecanoylphorbol 13-acetate (TPA) compared with TGFbeta1+/+ mice. Maximal TPA activation of protein kinase C (PKCalpha) as measured by activity assays and activation of target genes and induction of cornified envelopes correlated with TGFbeta1 gene dosage in keratinocytes and addition of exogenous TGFbeta1 restored the cornification defect in TGFbeta1+/- keratinocytes. Similarly, inhibition of ALK5-suppressed TPA-mediated PKCalpha activation suggesting that physiological levels of TGFbeta1 are required for maximal activation of PKC-dependent mitogenic responses. Paradoxically, the TPA-induced inflammatory response was greater in TGFbeta1+/- skin, but TGFbeta1+/+ papillomas had more tumor infiltrating myeloperoxidase-positive cells and pro-inflammatory gene expression was elevated in v-ras(Ha)-transduced TGFbeta1+/+ but not TGFbeta1+/- keratinocytes. Thus, ras activation switches TGFbeta1 to a pro-inflammatory cytokine. Despite this differential proliferative and inflammatory response to TPA and enhanced papilloma formation in the TGFbeta1+/+ mice, the frequency of malignant conversion was reduced compared with TGFbeta1+/- mice. Therefore, TGFbeta1 promotes benign tumors by modifying tumor promoter-induced cell proliferation and inflammation but retains a suppressive function for malignant conversion.