Diffuse pulmonary fibrosis is associated with bleomycin administration to humans. The sequential reactions of lung cells to this drug have now been investigated in mice following injection of 20 mg/kg bleomycin twice per week for 4 to 8 weeks. Cytoplasmic and subendothelial edema was first observed in large vessels and by 4 weeks involved the capillaries. The reaction in many animals did not progress further than endothelial lesions with accumulation of interstitial edema. However, 30% of mice subsequently showed necrosis of type 1 epithelium with a fibrinous exudate in the alveoli. Fibroblastic organization of the fibrin resulted in the deposition of intraalveolar collagen as well as extensive septal fibrosis by 8 weeks. Epithelial repair, normally accomplished by type 2 cell proliferation and transformation to type 1 cells, is characterized in this case by division and metaplasia of type 2 cells. The metaplastic cells were, however, capable of DNA synthesis and probably of further cell division. The results indicate that the pulmonary endothelium is the initial site of injury. Extensive damage to these cells could allow the drug access to interstitial and epithelial cells. Focal necrosis of type 1 epithelium is the critical event that triggers the exudation of fibrin and the subsequent reparative processes.