Transforming growth factor-β (TGF-β) is an important regulator of breast cancer progression. However, how the breast cancer microenvironment regulates TGF-β signaling during breast cancer progression remains largely unknown. Here, we identified fibulin-3 as a secreted protein in the breast cancer microenvironment, which efficiently inhibits TGF-β signaling in both breast cancer cells and endothelial cells. Mechanistically, fibulin-3 interacts with the type I TGF-β receptor (TβRI) to block TGF-β induced complex formation of TβRI with the type II TGF-β receptor (TβRII) and subsequent downstream TGF-β signaling. Fibulin-3 expression decreases during breast cancer progression, with low fibulin-3 levels correlating with a poorer prognosis. Functionally, high fibulin-3 levels inhibited TGF-β-induced epithelial-mesenchymal transition (EMT), migration, invasion and endothelial permeability, while loss of fibulin-3 expression/function promoted these TGF-β-mediated effects. Further, restoring fibulin-3 expression in breast cancer cells inhibited TGF-β signaling, breast cancer cell EMT, invasion and metastasis in vivo. These studies provide a novel mechanism for how TGF-β signaling is regulated by the tumor microenvironment, and provide insight into targeting the TGF-β signaling pathway in human breast cancer patients.