Endometrial decidualization results from the differentiation of stromal cells in an ovarian steroid-sensitive manner. Human endometrial tissues obtained from fertile women at various stages of the menstrual cycle were subjected to immunohistochemistry to localize the components of the transforming growth factor-beta (TGF-beta) system. TGF-beta receptor-I and -II expression was higher in stromal cells than in epithelial cells during the secretory phase while no such variation was observed during the proliferative phase. The expression of phosphorylated Smad3 (pSmad2/3), an activated form of a component of the TGF-beta signalling pathway, and translocation of pSmad2/3 from the cytoplasm to the nucleus were more pronounced in secretory endometrium. In coculture of human endometrial epithelial with stromal cells, each isolated from the proliferative endometrium, administration of progesterone stimulated decidualization as well as TGF-beta signalling activation in stromal cells. Progesterone also significantly elevated the concentration of TGF-beta1 in the coculture medium. Careful manipulation of the coculture, i.e. selective addition and omission of the cellular components, showed that this progesterone-induced increase in secretion of TGF-beta1 come mainly from epithelial cells. Moreover, administration of TGF-beta1 (10 ng/ml) directly to cultured stromal cells enhanced the expression of prolactin as well as pSamd2/3 even without progesterone. Taken together, our present data support the notion that progesterone induces stromal decidualization indirectly, i.e. by enhancing the expression and secretion of TGF-beta1 from epithelial cells. The secreted, epithelial-derived TGF-beta1 then acts on adjacent stromal cells, at least in part, to turn on Smad signalling that could lead to stromal decidualization.