To current knowledge, transforming growth factor β (TGFβ) signaling is mandatory to establish liver fibrosis and various molecular interventions designed to affect the TGFβ system were successfully used to inhibit fibrogenesis. Activated hepatic stellate cells (HSC), which are one important source of TGFβ, are the major producers of extracellular matrix proteins in liver injury. We have previously shown that the TGFβ response of this cell type is modulated during the transdifferentiation process. This work delineates the activation of TGFβ downstream mediators, the Smads, in quiescent HSC and transdifferentiated myofibroblasts (MFB). The expression level of all Smads remained largely unchanged during this process. The response of HSC to TGFβ, leading to, e.g., induction of α2 (I) collagen expression, is mediated by phosphorylation of Smad2 and Smad3 and subsequent nuclear translocation of a Smad containing complex. Neither TGFβ-dependent nor endogenously phosphorylated Smad2/3 was detectable in comparable amounts in transdifferentiated MFB, indicating loss of TGFβ sensitivity. Ectopic expression of Smad7 in HSC led to inhibition of Smad2 phosphorylation and abrogated TGFβ response. In transdifferentiated MFB, expression of a constitutively active TGFβ receptor I, but not treatment with TGFβ1, resulted in transcriptional activation of a TGFβ responsive promoter, thereby demonstrating completely restored TGFβ signal transduction. Our data indicate that in contrast to a postulated mechanism of enduring autocrine TGFβ signal transduction, early and late stages of HSC activation have to be distinguished, which is of importance for antifibrotic therapies.