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Disruption of latent TGF-beta binding protein (LTBP)-4 expression in the mouse leads to abnormal lung development and colorectal cancer. Lung fibroblasts from these mice produced decreased amounts of active TGF-beta, whereas secretion of latent TGF-beta was significantly increased. Expression and secretion of TGF-beta2 and -beta3 increased considerably. These results suggested that TGF-beta activation but not secretion would be severely impaired in LTBP-4 -/- fibroblasts. Microarrays revealed increased expression of bone morphogenic protein (BMP)-4 and decreased expression of its inhibitor gremlin. This finding was accompanied by enhanced expression of BMP-4 target genes, inhibitors of differentiation 1 and 2, and increased deposition of fibronectin-rich extracellular matrix. Accordingly, increased expression of BMP-4 and decreased expression of gremlin were observed in mouse lung. Transfection of LTBP-4 rescued the -/- fibroblast phenotype, while LTBP-1 was inefficient. Treatment with active TGF-beta1 rescued BMP-4 and gremlin expression to wild-type levels. Our results indicate that the lack of LTBP-4-mediated targeting and activation of TGF-beta1 leads to enhanced BMP-4 signaling in mouse lung.