We previously demonstrated that RhoA-dependent signaling regulates transforming growth factor-beta1 (TGF-beta1)-induced cytoskeletal reorganization in the human retinal pigment epithelial cell line ARPE-19. Smad pathways have also been shown to mediate TGF-beta1 activity. Here, we examined what regulates Rho GTPase activity and tested whether Smad signaling cross-talks with Rho pathways during TGF-beta1-induced actin rearrangement. Using small interfering RNAs, we found that NET1, the guanine nucleotide exchange factor of RhoA, is critical for TGF-beta1-induced cytoskeletal reorganization, N-cadherin expression, and RhoA activation. In ARPE-19 cells lacking NET1, TGF-beta1-induced stress fibers and N-cadherin expression were not observed. Interestingly, in dominant-negative Smad3-expressing or constitutively active Smad7 cells, TGF-beta1 failed to induce NET1 mRNA and protein expression. Consistent with these results, both dominant-negative Smad3 and constitutively active Smad7 blocked the cytoplasmic localization of NET1 and inhibited interactions between NET1 and RhoA. Finally, we found that NET1 is a direct gene target of TGF-beta1 via Smad3. Taken together, our results demonstrate that Smad3 regulates RhoA activation and cytoskeletal reorganization by controlling NET1 in TGF-beta1-induced ARPE-19 cells. These data define a new role for Smad3 as a modulator of RhoA activation in the regulation of TGF-beta1-induced epithelial-mesenchymal transitions.