Decorin, a leucine-rich proteoglycan with ubiquitous tissue distribution, may play essential biological roles during inflammation and cancer growth through its ability to bind extracellular matrix constituents and growth factors. In this study, we demonstrate that decorin gene expression is greatly enhanced after normal diploid fibroblasts reach confluency and cease to proliferate. Elevation of decorin mRNA steady state levels was maintained for up to 16 days postconfluency. In vitro transcription analyses indicated enhanced transcriptional activity in quiescent fibroblasts when compared to cells harvested in their logarithmic phase of growth. This phenotypic trait was reversed by the exogenous addition of tumor necrosis factor-alpha (TNF-alpha). Furthermore, transforming growth factor-beta (TGF-beta) down-regulated decorin gene expression in an additive manner with TNF-alpha. Transient cell transfection assays using plasmid constructs harboring the decorin promoter linked to the chloramphenicol acetyltransferase reporter gene demonstrated a dose-dependent transcriptional repression by TNF-alpha. These findings were further corroborated by in vitro transcription experiments using nuclear extracts from control and TNF-alpha-treated quiescent fibroblasts. In contrast, the decorin promoter constructs failed to respond to TGF-beta, thus suggesting either post-transcriptional regulation by this growth factor or lack of TGF-beta-responsive elements. Further experiments with 5' deletion constructs showed two TNF-alpha response elements, one residing within the 5'-untranslated region (exon Ib), the other one between residues -188 and -140 of the decorin promoter. Collectively, our results indicate that TNF-alpha, through its ability to transcriptionally inhibit decorin gene expression in growth-arrested cells, may be a key modulator of the biological functions of this proteoglycan.