The hallmark of idiopathic pulmonary fibrosis (IPF) is the myofibroblast, the cellular origin of which in the lung is unknown. We hypothesized that alveolar epithelial cells (AECs) may serve as a source of myofibroblasts through epithelial-mesenchymal transition (EMT). Effects of chronic exposure to transforming growth factor (TGF)-beta1 on the phenotype of isolated rat AECs in primary culture and a rat type II cell line (RLE-6TN) were evaluated. Additionally, tissue samples from patients with IPF were evaluated for cells co-expressing epithelial (thyroid transcription factor (TTF)-1 and pro-surfactant protein-B (pro-SP-B), and mesenchymal (alpha-smooth muscle actin (alpha-SMA)) markers. RLE-6TN cells exposed to TGF-beta1 for 6 days demonstrated increased expression of mesenchymal cell markers and a fibroblast-like morphology, an effect augmented by tumor necrosis factor-alpha (TNF-alpha). Exposure of rat AECs to TGF-beta1 (100 pmol/L) resulted in increased expression of alpha-SMA, type I collagen, vimentin, and desmin, with concurrent transition to a fibroblast-like morphology and decreased expression of TTF-1, aquaporin-5 (AQP5), zonula occludens-1 (ZO-1), and cytokeratins. Cells co-expressing epithelial markers and alpha-SMA were abundant in lung tissue from IPF patients. These results suggest that AECs undergo EMT when chronically exposed to TGF-beta1, raising the possibility that epithelial cells may serve as a novel source of myofibroblasts in IPF.