Objectives To investigate the effects of tumor necrosis factor-alpha (TNF- alpha) and transforming growth factor-beta 1 (TGF- beta 1) on the proliferation and differentiation of tendon-derived stem cells (TDSC). Results TNF- alpha inhibits the proliferation and tenogenic/ osteogenic differentiation of TDSC but, after simultaneous or sequential treatment with TGF- beta 1 and TNF- alpha, the expression of tenogenic/osteogenic-related marker and proliferation of TDSC was significantly increased. During these processes, Smad2/3 and Smad1/5/8 were highly phosphorylated, meaning that the TGF- beta and BMP signaling pathways were highly activated. Further study revealed that the expression of Inhibitor-Smad appeared to be negatively correlated to the proliferation and differentiation of TDSC. Conclusions Combining the use of TNF- alpha and TGF beta 1 could improve the proliferation and differentiation of TDSC in vitro, and the expression of I-Smad is negatively correlated with TDSC proliferation and differentiation.