A large body of work has established roles for epithelial cells as important mediators of progressive fibrosis and carcinogenesis. Transforming growth factor-beta (TGF-beta) and pro-inflammatory cytokines are important inducers of fibro-carcinogenesis. TGF-beta signaling involves phosphorylation of Smad3 at middle linker and/or C-terminal regions. Reversible shifting of Smad3-dependent signaling between tumor-suppression and oncogenesis in hyperactive Ras-expressing epithelial cells indicates that Smad3 phosphorylated at the C-terminal region (pSmad3C) transmits a tumor-suppressive TGF-beta signal, while oncogenic activities such as cell proliferation and invasion are promoted by Smad3 phosphorylated at the linker region (pSmad3L). Notably, pSmad3L-mediated signaling promotes extracellular matrix deposition by activated mesenchymal cells. During progression of chronic liver diseases, hepatic epithelial hepatocytes undergo transition from the tumor-suppressive pSmad3C pathway to the fibrogenic/oncogenic pSmad3L pathway, accelerating liver fibrosis and increasing risk of hepatocellular carcinoma. c-Jun N-terminal kinase activated by pro-inflammatory cytokines is mediating this perturbed hepatocytic TGF-beta signaling. Thus, TGF-beta signaling of hepatocytes affected by chronic inflammation offers a general framework for understanding the molecular mechanisms of human fibro-carcinogenesis during progression of chronic liver diseases.