Transforming growth factor-β1 (TGF-β1) is a potent regulator of extracellular matrix production, wound healing, differentiation, and immune response, and is implicated in the progression of fibrotic diseases and cancer. Extracellular activation of TGF-β1 from its latent form provides spatiotemporal control over TGF-β1 signaling, but the current understanding of TGF-β1 activation does not emphasize cross talk between activators. Plasmin (PLS) and thrombospondin-1 (TSP1) have been studied individually as activators of TGF-β1, and in this work we used a systems-level approach with mathematical modeling and in vitro experiments to study the interplay between PLS and TSP1 in TGF-β1 activation. Simulations and steady-state analysis predicted a switch-like bistable transition between two levels of active TGF-β1, with an inverse correlation between PLS and TSP1. In particular, the model predicted that increasing PLS breaks a TSP1-TGF-β1 positive feedback loop and causes an unexpected net decrease in TGF-β1 activation. To test these predictions in vitro, we treated rat hepatocytes and hepatic stellate cells with PLS, which caused proteolytic cleavage of TSP1 and decreased activation of TGF-β1. The TGF-β1 activation levels showed a cooperative dose response, and a test of hysteresis in the cocultured cells validated that TGF-β1 activation is bistable. We conclude that switch-like behavior arises from natural competition between two distinct modes of TGF-β1 activation: a TSP1-mediated mode of high activation and a PLS-mediated mode of low activation. This switch suggests an explanation for the unexpected effects of the plasminogen activation system on TGF-β1 in fibrotic diseases in vivo, as well as novel prognostic and therapeutic approaches for diseases with TGF-β dysregulation.