Transforming growth factor‐β1 (TGF‐β1) is a key factor in bone reconstruction. However, its pathophysiological role in non‐union and bone repair remains unclear. Here we demonstrated that TGF‐β1 was highly expressed in both C57BL/6 mice where new bone formation was impaired after autologous bone marrow mesenchymal stem cell (BMMSC) implantation in non‐union patients. High doses of TGF‐β1 inhibited BMMSC osteogenesis and attenuated bone regeneration in vivo. Furthermore, different TGF‐β1 levels exhibited opposite effects on osteogenic differentiation and bone healing. Mechanistically, low TGF‐β1 doses activated smad3, promoted their binding to bone morphogenetic protein 2 (Bmp2 ) promoter, and upregulated Bmp2 expression in BMMSCs. By contrast, Bmp2 transcription was inhibited by changing smad3 binding sites on its promoter at high TGF‐β1 levels. In addition, high TGF‐β1 doses increased tomoregulin‐1 (Tmeff1) levels, resulting in the repression of Bmp2 and bone formation in mice. Treatment with the TGF‐β1 inhibitor SB431542 significantly rescued BMMSC osteogenesis and accelerated bone regeneration. Our study suggests that high‐dose TGF‐β1 dampens BMMSC‐mediated bone regeneration by activating canonical TGF‐β/smad3 signaling and inhibiting Bmp2 via direct and indirect mechanisms. These data collectively show a previously unrecognized mechanism of TGF‐β1 in bone repair, and TGF‐β1 is an effective therapeutic target for treating bone regeneration disability.