Transforming Growth Factor-[beta] (TGF-[beta]) and Epidermal Growth Factor (EGF) signaling pathways are both independently implicated as key regulators in tumor formation and progression. Here, we demonstrate that activation of the tumor-associated and over-expressed EGFR desensitizes TGF-[beta] signaling and its cytostatic regulation through specific Stat3 activation and Smad7 induction. In normal and tumor human cell lines, reduction of TGF-[beta]-mediated Smad2 phosphorylation, nuclear translocation and Smad3 target gene activation were observed where EGFR is over-expressed, but not in cells which expressed EGFR at normal levels. The EGFR downstream signaling molecules phosphatidyinositol-3 Kinase (PI3K) or mitogen-activated protein kinase/ERK kinase (MEK) are not responsible for the down-regulation of TGF-[beta] signaling since blockade of them by specific pharmacological inhibitors LY294002 and U0126 had little effects on the sensitivity of TGF-[beta] signaling. We identified Stat3 as a signaling molecule activated specifically and persistently by over-expressed EGFR, but not by normal levels. Importantly, Stat3 is responsible for the reduced TGF-[beta] sensitivity, since its knockdown by siRNA restored TGF-[beta] signaling sensitivity. Furthermore, over-expressed EGFR, through Stat3 activates Smad7 promoter activity, increasing its protein levels, which is a negative regulator of TGF-[beta] signaling. Consequently, cells were re-sensitized to TGF-[beta] when Smad7 expression was reduced using siRNA. Therefore we establish a novel EGFR-Stat3-Smad7-TGF-[beta] signaling molecular axis where tumor-associated over-expression of EGFR in epithelial cells results in hyperactivation of Stat3, which activates Smad7 expression, compromising the TGF-[beta]'s cytostatic regulation of epithelium and consequent tumor formation.