TLR4 signaling induces down-regulation of the bone morphogenic protein (BMP) and activin membrane-bound inhibitor (BAMBI), which enhances TGF-β signaling during hepatic stellate cell (HSC) activation. We investigated the mechanism by which TLR4 signaling down-regulates BAMBI expression in HSCs and found that TLR4- and TNF-α-mediated BAMBI down-regulation is dependent on regulation of BAMBI promoter activity through the interaction with NF-κBp50 and HDAC1 in HSCs. Bambi was predominantly expressed in HSCs, at high levels in quiescent HSCs but at low levels in in vivo-activated and LPS-stimulated HSCs. In human HSCs, BAMBI expression was down-regulated in response to LPS and TNF-α. A BAMBI reporter assay demonstrated that the regulatory element to repress BAMBI transcription is located between 3384 and 1560 bp upstream from the transcription start site. LPS stimulation down-regulated BAMBI expression in cells with NF-κBp65 knockdown. However, it failed to down-regulate BAMBI in cells with inactivation of NF-κB or NF-κBp50 silencing, indicating that NF-κBp50 is a factor for BAMBI down-regulation. ChIP analysis revealed that LPS and TNF-α induced binding of the NF-κBp50/p50 homodimer to the BAMBI promoter region. We also found that HDAC1 is bound to this region as part of the NF-κBp50-HDAC1 complex, repressing transcriptional activity of the BAMBI promoter. Finally, we confirmed that LPS does not repress BAMBI reporter activity using a BAMBI reporter construct with a mutation at 3166 bp upstream of the coding region. In summary, our study demonstrates that LPS- and TNF-α-induced NF-κBp50-HDAC1 interaction represses BAMBI transcriptional activity, which contributes to TLR4-mediated enhancement of TGF-β signaling in HSCs during liver fibrosis.