Alterations in expression of or responsiveness to transforming growth factor beta (TGF-beta) are frequently found in human and animal epithelial cancers and are though to be important for loss of growth control in the neoplastic cell. We show here that keratinocyte cell lines from mice with a targeted deletion of the TGF-beta 1 gene have significantly increased frequencies of gene amplification in response to the drug N-phosphonoacetyl-L-aspartate (PALA) compared to TGF-beta 1-expressing control keratinocyte cell lines. In contrast to the control lines, the PALA-mediated G1 arrest did not occur in the TGF-beta 1 null keratinocytes despite the presence of wild-type p53 in both genotypes. Exogenous TGF-beta 1 suppresses gene amplification in the null keratinocytes at concentrations that do not cause a G1 growth arrest and in human tumor cell lines that are insensitive to TGF-beta 1-mediated growth inhibition. The pathway of TGF-beta 1 suppression is independent of the p53 and Rb genes, but requires an intact TGF-beta type II receptor. These studies reveal a novel TGF-beta-mediated pathway regulating genomic stability and suggest that defects in TGF-beta signaling may have profound effects on tumor progression independent of cell proliferation.