Signaling of TGFbeta family members such as activin is tightly regulated by soluble binding proteins. Follistatin binds to activin A with high affinity, and prevents activin binding to its own receptors, thereby blocking its signaling. We previously identified FLRG gene from a B-cell leukemia carrying a t(11;19)(q13;p13) translocation. We and others have already shown that FLRG, which is highly homologous to follistatin, may be involved in the regulation of the activin function through its binding to activin. In this study, we found that, like follistatin, FLRG protein inhibited activin A signaling as demonstrated by the use of a transcriptional reporter assay, and blocked the activin A-induced growth inhibition of HepG2 cells. We have recently shown that the TGFbeta-induced expression of FLRG occurs at a transcriptional level through the action of Smad proteins. Here we show that activin A increases FLRG and follistatin at both the mRNA and protein levels. We found that Smad proteins are involved in the activin A-induced transcription activation of FLRG and follistatin. Finally we demonstrate that FLRG protein regulates its own activin-induced expression. In conclusion, activin A induces FLRG and follistatin expression. This observation, in conjunction with the antagonistic effect of FLRG and follistatin on activin signaling, indicates that these two proteins participate in a negative feedback loop which regulates the activin function.