Herbal compound 861 (Cpd 861) exerts an anti-fibrotic effect in patients with hepatic fibrosis; however, the anti-fibrotic mechanism has yet to be fully elucidated. The present study aimed to explore the mechanistic basis for the anti-fibrotic effect, with a focus on bone morphogenetic protein 7 (BMP-7)/Smad signaling in a bile duct ligation (BDL)-induced liver fibrosis rat model. Following the induction of hepatic fibrosis, rats induced by BDL were treated with 9 g/kg Cpd 861 daily or an equal volume of saline for 28 days. Serum samples were prepared for monitoring the levels of alanine transaminase, aspartate transaminase and total bilirubin, and direct bilirubin analyses and liver samples were used to investigate gene expression, protein localization and protein expression analysis using real-time quantitative polymerase chain reaction, immunohistochemistry and western blotting. The results revealed the attenuation of liver fibrosis by Cpd 861 in the histological and biochemical experiments. BMP-7 and phospho (p)-Smad1/5/8 were localized predominantly in the cytoplasm of hepatocytes. In comparison with the saline-treated BDL rats, Cpd 861 markedly upregulated the gene expression of BMP-7 and Smad5, as well as the protein expression of BMP-7 and Smad1/5. In addition, p-Smad1/5/8 protein expression was markedly increased by Cpd 861 in the BDL model. These results indicated that Cpd 861 alleviates hepatic fibrosis possibly via the upregulation and activation of BMP-7/Smad signaling in hepatic fibrotic rats.