Cartilage damage in osteoarthritis (OA) is considered an imbalance between catabolic and anabolic factors, favoring the catabolic side. We assessed whether adenoviral overexpression of transforming growth factor-beta (TGFbeta) enhanced cartilage repair and whether TGFbeta-induced fibrosis was blocked by local expression of the intracellular TGFbeta inhibitor Smad7. We inflicted cartilage damage by injection of interleukin-1 (IL-1) into murine knee joints. After 2 days, we injected an adenovirus encoding TGFbeta. On day 4, we measured proteoglycan (PG) synthesis and content. To examine whether we could block TGFbeta-induced fibrosis and stimulate cartilage repair simultaneously, we injected Ad-TGFbeta and Ad-Smad7. This was performed both after IL-1-induced damage and in a model of primary OA. In addition to PG in cartilage, synovial fibrosis was measured by determining the synovial width and the number of procollagen I-expressing cells. Adenoviral overexpression of TGFbeta restored the IL-1-induced reduction in PG content and increased PG synthesis. TGFbeta-induced an elevation in PG content in cartilage of the OA model. TGFbeta-induced synovial fibrosis was strongly diminished by simultaneous synovial overexpression of Smad7 in the synovial lining. Of great interest, overexpression of Smad7 did not reduce the repair-stimulating effect of TGFbeta on cartilage. Adenoviral overexpression of TGFbeta stimulated repair of IL-1- and OA-damaged cartilage. TGFbeta-induced synovial fibrosis was blocked by locally inhibiting TGFbeta signaling in the synovial lining by simultaneously transfecting it with an adenovirus overexpressing Smad7.