The relationship between bile duct damage and portal fibrosis in chronic liver diseases remains unclear. This study was designed to show whether human intrahepatic biliary epithelial cells can undergo epithelial-mesenchymal cell transition, thereby directly contributing to fibrogenesis. Primary human cholangiocytes were stimulated with transforming growth factor-beta (TGFbeta) or TGFbeta-presenting T cells and examined for evidence of transition to a mesenchymal phenotype. Liver sections were labelled to detect antigens associated with biliary epithelial cells (cytokeratin 7 and 19 and E-cadherin), T cells (CD8), epithelial-mesenchymal transition (S100A4, vimentin and matrix metalloproteinase-2 (MMP-2)), myofibroblasts (alpha-smooth muscle actin) and intracellular signal-transduction mediated by phosphorylated (p)Smad 2/3; in situ hybridisation was performed to detect mRNA encoding TGFbeta and S100A4. Stimulation of cultured cells with TGFbeta induced the expression of pSmad2/3, S100A4 and alpha-smooth muscle actin; these cells became highly motile. Although normal bile ducts expressed ALK5 (TGFbeta RI), low levels of TGFbeta mRNA and nuclear pSmad2/3, they did not express S100A4, vimentin or MMP-2. However, TGFbeta mRNA and nuclear pSmad2/3 were strongly expressed in damaged ducts, which also expressed S100A4, vimentin and MMP-2. Fibroblast-like cells which expressed S100A4 were present around many damaged bile ducts. Cells in the 'ductular reaction' expressed both epithelial and mesenchymal markers together with high levels of TGFbeta mRNA and pSmad2/3. In conclusion, the cells forming small- and medium-sized bile ducts and the ductular reaction undergo EMT during chronic liver diseases, resulting in the formation of invasive fibroblasts; this process may be driven by a response to local TGFbeta, possibly presented by infiltrating T cells.