Small airway fibrosis (bronchiolitis obliterans syndrome) is the primary obstacle to long-term survival following lung transplantation. Here, we show the importance of functional microvasculature in the prevention of epithelial loss and fibrosis due to rejection and for the first time, relate allograft microvascular injury and loss of tissue perfusion to immunotherapy-resistant rejection. To explore the role of alloimmune rejection and airway ischemia in the development of fibroproliferation, we used a murine orthotopic tracheal transplant model. We determined that transplants were reperfused by connection of recipient vessels to donor vessels at the surgical anastomosis site. Microcirculation through the newly formed vascular anastomoses appeared partially dependent on VEGFR2 and CXCR2 pathways. In the absence of immunosuppression, the microvasculature in rejecting allografts exhibited vascular complement deposition, diminished endothelial CD31 expression, and absent perfusion prior to the onset of fibroproliferation. Rejecting grafts with extensive endothelial cell injury were refractory to immunotherapy. After early microvascular loss, neovascularization was eventually observed in the membranous trachea, indicating a reestablishment of graft perfusion in established fibrosis. One implication of this study is that bronchial artery revascularization at the time of lung transplantation may decrease the risk of subsequent airway fibrosis.