Distinct subpopulations of fibroblasts contribute to lung fibrosis, although the mechanisms underlying fibrogenesis in these subpopulations are not clear. Differential expression of the glycophosphatidylinositol-linked protein Thy-1 affects proliferation and myofibroblast differentiation. Lung fibroblast populations selected on the basis of Thy-1 expression by cell sorting were examined for responses to fibrogenic stimuli. Thy-1 (-) and Thy-1 (+) fibroblast populations were treated with platelet-derived growth factor-BB, interleukin-1beta, interleukin-4, or bleomycin and assessed for activation of transforming growth factor (TGF)-beta, Smad3 phosphorylation, and alpha-smooth muscle actin and fibronectin expression. Thy-1 (-) fibroblasts responded to these stimuli with increased TGF-beta activity, Smad3 phosphorylation, and expression of alpha-smooth muscle actin and fibronectin, whereas Thy-1 (+) fibroblasts resisted stimulation. The unresponsiveness of Thy-1 (+) cells is not because of defective TGF-beta signaling because both subsets respond to exogenous active TGF-beta. Rather, Thy-1 (-) fibroblasts activate latent TGF-beta in response to fibrogenic stimuli, whereas Thy-1 (+) cells fail to do so. Defective activation is common to multiple mechanisms of TGF-beta activation, including thrombospondin 1, matrix metalloproteinase, or plasmin. Thy-1 (-) lung fibroblasts transfected with Thy-1 also become resistant to fibrogenic stimulation, indicating that Thy-1 is a critical biological response modifier that protects against fibrotic progression by controlling TGF-beta activation. These studies provide a molecular basis for understanding the differential roles of fibroblast subpopulations in fibrotic lung disease through control of latent TGF-beta activation.