To examine signaling pathways underlying transforming growth factor-beta (TGF-beta)-mediated changes in cell morphology, we used a microarray system to identify downstream target genes that may play a role in this process. Through this approach, we found that the NET1 gene was induced upon TGF-beta treatment in several cell types. NET1 is a guanine nucleotide exchange factor for RhoA whose activity has been implicated in stress fiber formation. In the Swiss 3T3 cell line, TGF-beta induces NET1 expression, and this correlated with an increase in stress fiber formation. Overexpression of the wild type NET1 gene increases stress fiber formation, and overexpression of a dominant negative NET1 mutant (L392E) prevented TGF-beta dependent increase in stress fiber formation. Furthermore, treatment of the cells with a RhoA kinase inhibitor Y-27632 blocks TGF-beta-induced stress fiber formation. By using a stable cell line expressing dominant negative Smad3, we found that the Smad signaling pathway is essential for the induction of NET1, which in turn leads to the increase of Rho activity. Taken together, those data suggest that induction of NET1 is important for the increase of Rho activity upon TGF-beta treatment, which may represent the critical trigger for a variety of downstream events in different cells. Our results support the presence of a novel signaling pathway by which TGF-beta may regulate the formation of stress fibers and reorganization of cytoskeletal structures.