Transforming growth factor (TGF)-beta is a multifunctional growth factor with important roles in development, cell proliferation, and matrix deposition. It signals through the sequential activation of two serine/threonine kinase receptors, the type I and type II receptors. A third cell surface receptor, betaglycan, serves as a co-receptor for TGF-beta in some cell types, enhancing TGF-beta-mediated signaling. We have examined the function of betaglycan in renal epithelial LLC-PK1 cells that lack endogenous betaglycan. We demonstrate that the expression of betaglycan in LLC-PK1 cells results in inhibition of TGF-beta signaling as measured by reporter gene expression, thymidine incorporation, collagen production, and phosphorylation of the downstream signaling effectors Smad2 and Smad3. In comparison, the expression of betaglycan in L6 myoblasts enhances TGF-beta signaling, which is consistent with the published literature. The effects of betaglycan in LLC-PK1 cells are not mediated by ligand sequestration or increased production of a soluble form of the receptor, which has been reported to serve as a ligand antagonist. We demonstrate instead that in LLC-PK1 cells, unlike L6 cells, expression of betaglycan prevents association between the type I and type II TGF-beta receptors, which is required for signaling. This is a function of the glycosaminoglycan modifications of betaglycan. Betaglycan in LLC-PK1 cells exhibits higher molecular weight glycosaminoglycan (GAG) chains than in L6 cells, and a GAG- betaglycan mutant does not inhibit TGF-beta signaling or type I/type II receptor association in LLC-PK1 cells. Our data indicate that betaglycan can function as a potent inhibitor of TGF-beta signaling by a novel mechanism and provide support for an essential but complex role for proteoglycan co-receptors in growth factor signaling.