The Nkx2.1 homeobox gene and transforming growth factor‐β1 (TGF‐β1) are essential for organogenesis and differentiation of the mouse lung. NKX2.1 is a marker of human lung carcinomas, but it is not known whether this gene participates in early tumorigenesis. Addition of TGF‐β1 to TGF‐β1‐responsive nontumorigenic mouse lung cells cotransfected with a NKX2.1Luc luciferase reporter and either a Sp1 or Sp3 plasmid showed a significant increase or decrease, respectively, in NKX2.1Luc transcription. Cotransfection of Sp3 and dominant‐negative TGF‐β type II receptor plasmids negated the effect of Sp1. Cotransfected Sp1 plasmid with either dominant‐negative Smad2 or Smad3 or Smad4 plasmids significantly decreased NKX2.1Luc transcription. Electrophoretic mobility shift assays revealed binding of Sp1 and Smad4 to the NKX2.1 promoter. With a TGF‐β1 heterozygous mouse model, Nkx2.1 mRNA and protein in lungs of TGF‐β1 heterozygous mice were significantly lower compared to wildtype (WT) littermates. Competitive reverse transcription (RT)‐polymerase chain reaction (PCR) and immunostaining showed that Nkx2.1 mRNA and protein decreased significantly in adenomas and adenocarcinomas compared to normal lung tissue. Our in vitro data showed that regulation of Nkx2.1 by TGF‐β1 occurs through TGF‐β type II receptor and Smad signaling, with Sp1 and Sp3 in lung cells. Our in vivo data showed reduced Nkx2.1 in lungs of TGF‐β1 heterozygous mice compared to WT mice, that is detectable in adenomas, and that is further reduced in carcinogenesis, and that correlates with reduction of Sp1, Sp3, and Smads in lung adenocarcinomas. Our findings suggest that reduced Nkx2.1 and TGF‐β1 signaling components may contribute to tumorigenesis in the lungs of TGF‐β1 heterozygous mice. Published 2004 Wiley‐Liss, Inc.