The cell cycle inhibitor p21/WAF1/Cip1 is expressed in many cell types and is regulated by p53-dependent and p53-independent mechanisms. p21 is an important regulator of hepatocyte cell cycle, differentiation, and liver development, but little is known about the regulation of its synthesis in hepatocytes. We report herein that the p21 gene is constitutively expressed in human hepatoma HepG2 cells. Deletion analysis of the p21 promoter showed that it contains a distal (positions −2,300/−210) and a proximal (positions −124 to −61) region that act synergistically to achieve high levels of constitutive expression. The proximal region that consists of multiple Sp1 binding sites is essential for constitutive p21 promoter activity in hepatocytes. This region also mediates the transcriptional activation of the p21 promoter by members of the Smad family of proteins, which play important role in the transduction of extracellular signals such as transforming growth factor β, activin, etc. Constitutive expression of p21 was severely reduced by a C-terminally truncated form of Smad4 that was shown previously to block signaling through Smads. Smad3/4 and to a much lesser extent Smad2/4 caused high levels of transcriptional activation of the p21 promoter. Transactivation was compromised by N- or C-terminally truncated forms of Smad3. By using Gal4-Sp1 fusion proteins, we show that Smad proteins can activate gene transcription via functional interactions with the ubiquitous factor Sp1. These data demonstrate that Smad proteins and Sp1 participate in the constitutive or inducible expression of the p21 gene in hepatic cells.