Adult hepatic progenitor cells are activated during regeneration when hepatocytes and bile duct epithelium are damaged or unable to proliferate. On the basis of its role as a tumor suppressor and in the potential malignant transformation of stem cells in hepatocellular carcinoma, we investigated the role of key transforming growth factor beta (TGF‐β) signaling components, including the Smad3 adaptor protein β2‐Spectrin (β2SP), in liver regeneration. We demonstrate a streaming hepatocyte‐specific dedifferentiation process in regenerating adult human liver less than 6 weeks following living donor transplantation. We then demonstrate a spatial and temporal expansion of TGF‐β signaling components, especially β2SP, from the periportal to the pericentral zone as regeneration nears termination via immunohistochemical analysis. This expansion is associated with an expanded remaining pool of octamer 3/4 (Oct3/4)‐positive progenitor cells localized to the portal tract in adult human liver from more than 6 weeks posttransplant. Furthermore, disruption of TGF‐β signaling as in the β2SP (β2SP+/−) knockout mouse demonstrated a striking 2 to 4‐fold (P < 0.05) expanded population of Oct3/4‐positive cells with activated Wnt signaling occupying an alpha‐fetoprotein (AFP)+/cytokeratin‐19 (CK‐19)‐positive progenitor cell niche following two‐thirds partial hepatectomy. Conclusion: TGF‐β signaling, particularly β2SP, plays a critical role in hepatocyte proliferation and transitional phenotype and its loss is associated with activation of hepatic progenitor cells secondary to delayed mitogenesis and activated Wnt signaling. (HEPATOLOGY 2010.)