Progressive kidney fibrosis precedes end-stage renal failure in up to a third of patients with diabetes mellitus. Elevated intra-renal transforming growth factor-β (TGF-β) is thought to underlie disease progression by promoting deposition of extracellular matrix and epithelial–mesenchymal transition. GW788388 is a new TGF-β type I receptor inhibitor with a much improved pharmacokinetic profile compared with SB431542. We studied its effect in vitro and found that it inhibited both the TGF-β type I and type II receptor kinase activities, but not that of the related bone morphogenic protein type II receptor. Further, it blocked TGF-β-induced Smad activation and target gene expression, while decreasing epithelial–mesenchymal transitions and fibrogenesis. Using db/db mice, which develop diabetic nephropathy, we found that GW788388 given orally for 5 weeks significantly reduced renal fibrosis and decreased the mRNA levels of key mediators of extracellular matrix deposition in kidneys. Our study shows that GW788388 is a potent and selective inhibitor of TGF-β signalling in vitro and renal fibrosis in vivo.