TGF-β signaling regulates a variety of cellular processes, including proliferation, apoptosis, differentiation, immune responses, and fibrogenesis. Here, we describe a lysine methylation-mediated mechanism that controls the pro-fibrogenic activity of TGF-β. We find that the methyltransferase Set9 potentiates TGF-β signaling by targeting Smad7, an inhibitory downstream effector. Smad7 methylation promotes interaction with the E3 ligase Arkadia and, thus, ubiquitination-dependent degradation. Depletion or pharmacological inhibition of Set9 results in elevated Smad7 protein levels and inhibits TGF-β-dependent expression of genes encoding extracellular matrix components. The inhibitory effect of Set9 on TGF-β-mediated extracellular matrix production is further demonstrated in mouse models of pulmonary fibrosis. Lung fibrosis induced by bleomycin or Ad-TGF-β treatment was highly compromised in Set9-deficient mice. These results uncover a complex regulatory interplay among multiple Smad7 modifications and highlight the possibility that protein methyltransferases may represent promising therapeutic targets for treating lung fibrosis.