Using a dominant‐negative mutant receptor (DNR) approach in transgenic mice, we have functionally inactivated transforming growth factor‐β (TGF‐β) signaling in select epithelial cells. The dominant‐negative mutant type II TGF‐β receptor blocked signaling by all three TGF‐β isoforms in primary hepatocyte and pancreatic acinar cell cultures generated from transgenic mice, as demonstrated by the loss of growth inhibitory and gene induction responses. However, it had no effect on signaling by activin, the closest TGF‐β family member. DNR transgenic mice showed increased proliferation of pancreatic acinar cells and severely perturbed acinar differentiation. These results indicate that TGF‐β negatively controls growth of acinar cells and is essential for the maintenance of a differentiated acinar phenotype in the exocrine pancreas in vivo. In contrast, such abnormalities were not observed in the liver. Additional abnormalities in the pancreas included fibrosis, neoangiogenesis and mild macrophage infiltration, and these were associated with a marked up‐regulation of TGF‐β expression in transgenic acinar cells. This transgenic model of targeted functional inactivation of TGF‐β signaling provides insights into mechanisms whereby loss of TGF‐β responsiveness might promote the carcinogenic process, both through direct effects on cell proliferation, and indirectly through up‐regulation of TGF‐βs with associated paracrine effects on stromal compartments.