Activated T cells infiltrate a renal allograft during rejection and can respond to TGF-β within the tubules, causing local differentiation and expression of the αE(CD103)β7 integrin. This study was performed to examine the expression of latent TGF-β within renal allograft tissues and to define a mechanism by which T cells can activate and respond to this latent factor. Rejecting renal allograft biopsy tissues showed increased expression of the latent TGF-β complex, which was localized around the tubules by a mechanism that might involve interaction with heparan sulfate in the basement membrane. A cultured renal TEC line also expressed the latent complex, but these cells did not respond to this form of TGF-β by pSmad 3. However, coculture of these cells with activated T cells induced the expression of CD103, suggesting that T cells can activate and respond to the latent TGF-β associated with TEC. Although activated T cells expressed little cell-surface TSP-1, this was increased by culture with fibronectin or fibronectin-expressing renal TEC. Blockade of TSP-1 using LSKL peptides reduced the potential of activated T cells to differentiate in response to latent TGF-β. This study suggests that penetration of renal tubules by activated T cells leads to increased expression of T cell-surface TSP-1, allowing activation of latent TGF-β sequestered on heparan sulfate within the microenvironment. This mechanism may be important for localized phenotypic maturation of T cells that have infiltrated the kidney during allograft rejection.