Fibrosis is characterized by accumulation of activated fibroblasts and pathological deposition of fibrillar collagens. Activated fibroblasts overexpress matrix proteins and release factors that promote further recruitment of activated fibroblasts, leading to progressive fibrosis. The contribution of epithelial cells to this process remains unknown. Epithelium-directed injury may lead to activation of epithelial cells with phenotypes and functions similar to activated fibroblasts. Prior reports that used a reporter gene fate-mapping strategy are limited in their ability to investigate the functional significance of epithelial cell-derived mesenchymal proteins during fibrogenesis. We found that lung epithelial cell-derived collagen I activates fibroblast collagen receptor discoidin domain receptor-2, contributes significantly to fibrogenesis, and promotes resolution of lung inflammation. Alveolar epithelial cells undergoing transforming growth factor-β–mediated mesenchymal transition express several other secreted profibrotic factors and are capable of activating lung fibroblasts. These studies provide direct evidence that activated epithelial cells produce mesenchymal proteins that initiate a cycle of fibrogenic effector cell activation, leading to progressive fibrosis. Therapy targeted at epithelial cell production of type I collagen offers a novel pathway for abrogating this progressive cycle and for limiting tissue fibrosis but may lead to sustained lung injury/inflammation.