Hepatocellular carcinoma (HCC) is the third leading cause of cancer mortality worldwide. CD133, a transmembrane glycoprotein, is an important cell surface marker for both stem cells and cancer stem cells in various tissues including liver. CD133 expression has been recently linked to poor prognosis in HCC patients. CD133+ liver cancer cells are characterized by resistance to chemotherapy, self‐renewal, multilineage potential, increased colony formation, and in vivo cancer initiation at limited dilution. Recent studies demonstrate that CD133 expression is regulated by DNA methylation. In this study, we explored the role of transforming growth factor β (TGFβ), a multifunctional cytokine that plays a critical role in chronic liver injury, in the regulation of CD133 expression. TGFβ1 is capable of up‐regulating CD133 expression specifically within the Huh7 HCC cell line in a time‐ and dose‐dependent manner. Most important, TGFβ1‐induced CD133+ Huh7 cells demonstrate increased tumor initiation in vivo. Forced expression of inhibitory Smads, including Smad6 and Smad7, attenuated TGFβ1‐induced CD133 expression. Within CD133− Huh7 cells, TGFβ1 stimulation inhibited the expression of DNA methyltransferases (DNMT) 1 and DNMT3β, which are critical in the maintenance of regional DNA methylation, and global DNMT activity in CD133− Huh7 cells was inhibited by TGFβ1. DNMT3β inhibition by TGFβ1 was partially rescued with overexpression of inhibitory Smads. Lastly, TGFβ1 treatment led to significant demethylation in CD133 promoter‐1 in CD133− Huh7 cells. Conclusion: TGFβ1 is able to regulate CD133 expression through inhibition of DNMT1 and DNMT3β expression and subsequent demethylation of promoter‐1. TGFβ1‐induced CD133+ Huh7 cells are tumorigenic. The mechanism by which TGFβ induces CD133 expression is partially dependent on the Smads pathway. HEPATOLOGY 2010