In hepatocarcinogenesis, it is an open question whether transforming growth factor (TGF)-β1 provides a tumor-suppressive or a tumor-promoting role. To address this question, we employed immortalized murine hepatocytes, which display a high degree of differentiation and, expectedly, arrest in the G1 phase under exposure to TGF-β1. These hepatocytes maintain epithelial polarization upon expression of oncogenic Ha-Ras. However, Ras-transformed hepatocytes rapidly convert to a spindle-shaped, fibroblastoid morphology upon treatment with TGF-β1, which no longer inhibits proliferation. This epithelial to fibroblastoid conversion (EFC) is accompanied by disruption of intercellular contacts and remodeling of the cytoskeletal framework. Fibroblastoid derivatives form elongated branching cords in collagen gels and grow to severely vascularized tumors in vivo, indicating their increased malignancy and even invasive phenotype. Additionally, fibroblastoid cells secrete strongly enhanced levels of TGF-β1, suggesting an autocrine regulation of TGF-β signaling. Expression profiling further revealed that the loss of the adhesion component E-cadherin correlates with the upregulation of its transcriptional repressor Snail in fibroblastoid cells. Moreover, the phosphoinositide 3-OH (PI3) kinase pathway was required for the maintenance of EFC, as inhibition of PI3 kinase reverted fibroblastoid cells to an epithelial-like phenotype. Taken together, these data indicate a dual role of TGF-β1 in hepatocytes: it induces proliferation arrest but provides a crucial function in promoting late malignant events in collaboration with activated Ha-Ras.