Tenascin-C (TNC) is an extracellular matrix glycoprotein of unknown function that is highly expressed in adult lung parenchyma following acute lung injury (ALI). Here we report that mice lacking TNC are protected from interstitial fibrosis in the bleomycin model of ALI. Three weeks after exposure to bleomycin, TNC-null mice had accumulated 85% less lung collagen than wild-type mice. The lung interstitium of TNC-null mice also appeared to contain fewer myofibroblasts and fewer cells with intranuclear Smad-2/3 staining, suggesting impaired TGF-β activation or signaling. In vitro, TNC-null lung fibroblasts exposed to constitutively active TGF-β expressed less α-smooth muscle actin and deposited less collagen I into the matrix than wild-type cells. Impaired TGF-β responsiveness was correlated with dramatically reduced Smad-3 protein levels and diminished nuclear translocation of Smad-2 and Smad-3 in TGF-β-exposed TNC-null cells. Reduced Smad-3 in TNC-null cells reflects both decreased transcript abundance and enhanced ubiquitin-proteasome-mediated protein degradation. Together, these studies suggest that TNC is essential for maximal TGF-β action after ALI. The clearance of TNC that normally follows ALI may restrain TGF-β action during lung healing, whereas prolonged or exaggerated TNC expression may facilitate TGF-β action and fibrosis after ALI.