Chronic rejection (CR) of pancreas allografts needs to be accurately defined and diagnosed. We propose a grading scheme designed for percutaneous needle biopsies (C0-CIII). Grading is based on the semi-quantitative determination of fibrosis and corresponding proportional loss of exocrine parenchyma. Pancreas biopsies (n = 141) from 46 patients were studied. Twenty-six patients lost graft function after a mean time of 25.5 months, whereas 20 patients retained good graft function during a mean follow-up of 67.7 months. Sequential biopsies showed gradual progression of CR over time (p = 0.0001), and good correlation was found between the CR grade and the time elapsed from transplantation (p = 0.0001). The CR grade was predictive of the remaining time of graft function (54.3 months for C0, 24.6 months for CI, 9.7 months for CII and 1.6 months for CIII p = 0.00001). Preceding episodes of acute rejection (AR) were more frequent and more severe, and often occurred late in patients with graft loss due to CR (p = 0.04). Reproducibility among pathologists from different institutions was excellent for grades C0 (Kappa 0.9) and CIII (0.87), substantial for Grade CII (0.61) and moderate for Grade CI (0.59). The proposed grading scheme provides a reliable and reproducible tool for the assessment of CR in percutaneous needle biopsies, with definite prognostic significance.