The critical involvement of TGF-β1 (transforming growth factor-β1) in DN (diabetic nephropathy) is well established. However, the role of CTGF (connective tissue growth factor) in regulating the complex interplay of TGF-β1 signalling networks is poorly understood. The purpose of the present study was to investigate co-operative signalling between CTGF and TGF-β1 and its physiological significance. CTGF was determined to bind directly to the TβRIII (TGF-β type III receptor) and antagonize TGF-β1-induced Smad phosphorylation and transcriptional responses via its N-terminal half. Furthermore, TGF-β1 binding to its receptor was inhibited by CTGF. A consequent shift towards non-canonical TGF-β1 signalling and expression of a unique profile of differentially regulated genes was observed in CTGF/TGF-β1-treated mesangial cells. Decreased levels of Smad2/3 phosphorylation were evident in STZ (streptozotocin)-induced diabetic mice, concomitant with increased levels of CTGF. Knockdown of TβRIII restored TGF-β1-mediated Smad signalling and cell contractility, suggesting that TβRIII is key for CTGF-mediated regulation of TGF-β1. Comparison of gene expression profiles from CTGF/TGF-β1-treated mesangial cells and human renal biopsy material with histological diagnosis of DN revealed significant correlation among gene clusters. In summary, mesangial cell responses to TGF-β1 are regulated by cross-talk with CTGF, emphasizing the potential utility of targeting CTGF in DN.