Areas of atypical epithelial proliferation were seen in the terminal airspaces in eight cases of idiopathic diffuse interstitial pulmonary fibrosis. These atypical changes included the presence of cuboidal and columnar epithelium characteristic of more proximal airspaces, squamous metaplasia in areas of predominantly cuboidal or columnar cells, and stratification of cells at times to a marked degree. In some areas nuclear and cytoplasmic changes suggested progression toward frank malignancy. Lung cancer was present in three of the eight cases. Two peripheral cancers included an adenocarcinoma and one epidermoid carcinoma with adenocarcinomatous components; the third, an oat cell variety, was too large to determine if peripheral or central in origin. It is concluded that the atypical epithelial changes observed in our cases, as well as those described in the literature, may progress to invasive malignancy. The present cases and a review of recorded cases of diffuse interstitial pulmonary fibrosis suggests that persons with this entity are prone to the development of lung cancer. © 1968.