Transforming growth factor (TGF)-beta is the prototype in a family of secreted proteins that act in autocrine and paracrine pathways to regulate cell development and function. Normal cells typically coexpress TGF-beta receptors and one or more isoforms of TGF-beta, thus the synthesis and secretion of TGF-beta as an inactive latent complex is considered an essential step in regula-ting the activity of this pathway. To determine whether intracellular activation of TGF-beta results in TGF-beta ligand-receptor interactions within the cell, we studied pristane-induced plasma cell tumors (PCTs). We now demonstrate that active TGF-beta1 in the PCT binds to intracellular TGF-beta type II receptor (TbetaRII). Disruption of the expression of TGF-beta1 by antisense TGF-beta1 mRNA restores localization of TbetaRII at the PCT cell surface, indicating a ligand-induced impediment in receptor trafficking. We also show that retroviral expression of a truncated, dominant-negative TbetaRII (dnTbetaRII) effectively competes for intracellular binding of active ligand in the PCT and restores cell surface expression of the endogenous TbetaRII. Analysis of TGF-beta receptor-activated Smad2 suggests the intracellular ligand-receptor complex is not capable of signaling. These data are the first to demonstrate the formation of an intracellular TGF-beta-receptor complex, and define a novel mechanism for modulating the TGF-beta signaling pathway.