Transforming growth factor-beta (TGF-beta) can regulate cell growth and differentiation as well as production of extracellular matrix proteins. Elevated production of TGF-beta has been associated with human and rodent chronic inflammatory and fibrotic diseases. Using immunohistochemical staining, we have examined lung sections of patients with advanced idiopathic pulmonary fibrosis (IPF), a disease characterized by chronic inflammation and fibrosis and demonstrated a marked and consistent increase in TGF-beta production in epithelial cells and macrophages when compared to patients with nonspecific inflammation and those with no inflammation or fibrosis. In patients with advanced IPF, intracellular staining with anti-LC (1-30) TGF-beta antibody was seen prominently in bronchiolar epithelial cells. In addition, epithelial cells of honeycomb cysts and hyperplastic type II pneumocytes stained intensely. Anti-CC (1-30) TGF-beta antibody, which reacts with extracellular TGF-beta, was localized in the lamina propria of bronchioles and in subepithelial regions of honeycomb cysts in areas of dense fibroconnective tissue deposition. The close association of subepithelial TGF-beta to the intracellular form in advanced IPF suggests that TGF-beta was produced and secreted primarily by epithelial cells. Because of the well-known effects of TGF-beta on extracellular matrix formation and on epithelial cell differentiation, the increased production of TGF-beta in advanced IPF may be pathogenic to the pulmonary fibrotic and regenerative responses seen in this disease.