In physiological conditions, the human intestinal mucosa is massively infiltrated with various subsets of immune cells, the activity of which is tightly regulated by several counter-regulatory factors. One of these factors is transforming growth factor-β1 (TGF-β1), a cytokine produced by multiple cell types and targeting virtually all the intestinal mucosal cells. Binding of TGF-β1 to its receptors triggers Smad2/3 signaling, thus culminating in the attenuation/suppression of immune–inflammatory responses. In patients with Crohn’s disease and patients with ulcerative colitis, the major human inflammatory bowel diseases (IBD), and in mice with IBD-like colitis, there is defective TGF-β1/Smad signaling due to high levels of the intracellular inhibitor Smad7. Pharmacological inhibition of Smad7 restores TGF-β1 function, thereby reducing inflammatory pathways in patients with IBD and colitic mice. On the other hand, transgenic over-expression of Smad7 in T cells exacerbates colitis in various mouse models of IBD. Smad7 is also over-expressed in other inflammatory disorders of the gut, such as refractory celiac disease, necrotizing enterocolitis and cytomegalovirus-induced colitis, even though evidence is still scarce and mainly descriptive. Furthermore, Smad7 has been involved in colon carcinogenesis through complex and heterogeneous mechanisms, and Smad7 polymorphisms could influence cancer prognosis. In this article, we review the data about the expression and role of Smad7 in intestinal inflammation and cancer.