Chronic hypoxia activates transforming growth factor-β (TGF-β) signaling and leads to pulmonary vascular remodeling. Pharmacological activation of peroxisome proliferator-activated receptor-γ (PPAR-γ) has been shown to prevent hypoxia-induced pulmonary hypertension and vascular remodeling in rodent models, suggesting a vasoprotective effect of PPAR-γ under chronic hypoxic stress. This study tested the hypothesis that there is a functional interaction between TGF-β/Smad signaling pathway and PPAR-γ in isolated pulmonary artery small muscle cells (PASMCs) under hypoxic stress. We observed that chronic hypoxia led to a dramatic decrease of PPAR-γ protein expression in whole lung homogenates (rat and mouse) and hypertrophied pulmonary arteries and isolated PASMCs. Using a transgenic model of mouse with inducible overexpression of a dominant-negative mutant of TGF-β receptor type II, we demonstrated that disruption of TGF-β pathway significantly attenuated chronic hypoxia-induced downregulation of PPAR-γ in lung. Similarly, in isolated rat PASMCs, antagonism of TGF-β signaling with either a neutralizing antibody to TGF-β or the selective TGF-β receptor type I inhibitor SB431542 effectively attenuated hypoxia-induced PPAR-γ downregulation. Furthermore, we have demonstrated that TGF-β1 treatment suppressed PPAR-γ expression in PASMCs under normoxia condition. Chromatin immunoprecipitation analysis showed that TGF-β1 treatment significantly increased binding of Smad2/3, Smad4, and the transcriptional corepressor histone deacetylase 1 to the PPAR-γ promoter in PASMCs. Conversely, treatment with the PPAR-γ agonist rosiglitazone attenuated TGF-β1-induced extracellular matrix molecule expression and growth factor in PASMCs. These data provide strong evidence that activation of TGF-β/Smad signaling, via transcriptional suppression of PPAR-γ expression, mediates chronic hypoxia-induced downregulation of PPAR-γ expression in lung.