Transforming growth factor beta (TGF-beta) stimulates reactive oxygen species (ROS) production in various cell types, which mediates many of the effects of TGF-beta. The molecular mechanisms whereby TGF-beta increases ROS production and ROS modulate the signaling processes of TGF-beta, however, remain poorly defined. In this study, we show that TGF-beta1 stimulates NADPH oxidase 4 (Nox4) expression and ROS generation in the nucleus of murine embryo fibroblasts (NIH3T3 cells). This is associated with an increase in protein thiol modification and inactivation of MAPK phosphatase 1 (MKP-1), a nuclear phosphatase. Furthermore, knockdown of MKP-1 using small interfering RNA enhances TGF-beta1-induced phosphorylation of JNK and p38 as well as the expression of plasminogen activator inhibitor 1 (PAI-1), a TGF-beta-responsive gene involved in the pathogenesis of many diseases. Knockdown of Nox4 with Nox4 small interfering RNA, on the other hand, reduces TGF-beta1-stimulated ROS production, p38 phosphorylation, and PAI-1 expression. TGF-beta also increased the nuclear level of Nox4 protein as well as PAI-1 expression in human lung fibroblasts (CCL-210 cells), suggesting that TGF-beta may induce PAI-1 expression by a similar mechanism in human lung fibroblasts. In summary, in this study we have identified nuclear MAPK phosphatase MKP-1 as a novel molecular target of ROS in TGF-beta signaling pathways. Our data suggest that increased generation of ROS by Nox4 mediates TGF-beta1-induced PAI-1 gene expression at least in part through oxidative modification and inhibition of MKP-1 leading to a sustained activation of JNK and p38 MAPKs.