Flexor tendon injuries caused by deep lacerations to the hands are a challenging problem as they often result in debilitating adhesions that prevent the movement of the afflicted fingers. Evidence exists that tendon adhesions as well as scarring throughout the body are largely precipitated by the pleiotropic growth factor, Transforming Growth Factor Beta 1(TGF-β1), but the effects of TGF-β1 are poorly understood in tendon healing. Using an in vitro model of tendon healing, we previously found that TGF-β1 causes gene expression changes in tenocytes that are consistent with scar tissue and adhesion formation, including upregulation of the anti-fibrinolytic protein, PAI-1. Therefore, we hypothesized that TGF-β1 contributes to scarring and adhesions by reducing the activity of proteases responsible for ECM degradation and remodeling, such as plasmin and MMPs, via upregulation of PAI-1. To test our hypothesis, we examined the effects of TGF-β1 on the protease activity of tendon cells. We found that flexor tendon tenocytes treated with TGF-β1 had significantly reduced levels of active MMP-2 and plasmin. Interestingly, the effects of TGF-β1 on protease activity were completely abolished in tendon cells from homozygous plasminogen activator inhibitor 1 (PAI-1) knockout (KO) mice, which are unable to express PAI-1. Our findings support the hypothesis that TGF-β1 induces PAI-1, which suppresses plasmin and plasmin-mediated MMP activity, and provide evidence that PAI-1 may be a novel therapeutic target for preventing adhesions and promoting a scarless, regenerative repair of flexor tendon injuries.