The TGF-β, a tumor suppressive cytokine in normal cells, is abused in cancer to promote the malignancy. In this study, we reported that TGF-β downregulated the mutS homolog 2 (MSH2), a central component of the DNA mismatch repair (MMR) system, in HER2-transformed MCF10A mammary epithelial cells and in breast cancer (BC) cells. This was mediated by a TGF-β-induced micro RNA (miRNA), miR-21, which targeted the 3' untranslated region of MSH2 mRNA and downregulated its expression. A negative correlation between the expression of TGF-β1 and MSH2 was also detected in primary breast tumors. In contrast, TGF-β upregulated MSH2 in nontransformed cells through Smad-mediated, p53-dependent promoter activation, which was absent in BC cells with impaired p53 function. Although this upregulating mechanism also existed in MCF10A/HER2 and p53-proficient BC cells, both basal and TGF-β-induced MSH2 promoter activities were significantly lower than those in MCF10A. Moreover, the basal and TGF-β-induced miR-21 levels were markedly higher in transformed cells, suggesting that the preset levels of miR-21 and MSH2 promoter activity, which is affected by the p53 status, determine the outputs of the bidirectional regulation of MSH2 by TGF-β in a certain cellular context. We further found that by downregulating MSH2, TGF-β contributed to resistance to DNA-damaging chemotherapy agents in cancer cells. Our results indicated a regulatory antagonism between promoter activation and miRNA-mediated posttranscriptional inhibition underlying a dual effect of TGF-β on the DNA repair machinery, which may influence the genomic stability in a context-dependent manner and contribute to chemoresistance in cancer.