Chronic graft dysfunction is now the leading clinical problem after renal transplantation. The principal histopathologic lesion seen in this disease is tubular loss with concurrent interstitial fibrosis. Although the severity of acute rejection often correlates with that of subsequent chronic dysfunction, a direct link between these processes has remained elusive. This study was designed to test the hypothesis that intraepithelial T cells recruited to the renal tubules during acute rejection can directly induce fibrosis by causing tubular epithelial cells to undergo transformation to produce a motile population of activated fibroblasts. A study of renal allograft tissue sections showed the presence of the S100A4 marker of epithelial to mesenchymal transition in some tubular epithelial cells; the expression of this antigen was heterogeneous both within and between individual tubular cross-sections. Significantly, S100A4-expressing epithelial cells were frequently associated with infiltrating CD8+ T cells, and many coexpressed the Ki67 marker of proliferation. A parallel study of human renal cortical epithelial cells in primary culture demonstrated that S100A4 was induced by stimulation for 72 h with TGF-β1 and by direct contact with membrane-associated TGF-β on MOLT-16 cells, a model intraepithelial T-cell line. Further experiments demonstrated that induction of transition coincided with a significantly increased potential for human renal epithelial cells to invade the tubular basement membrane. These data are consistent with a model in which intratubular T cells can present TGF-β and directly induce adjacent tubular epithelial cells to transform to proliferating fibroblasts that migrate across the tubular basement membrane, producing fibrotic lesions within the renal interstitium.