Although direct intercellular contacts between alveolar epithelial cells and fibroblasts have been described in developing and adult lung, the frequency of such contacts and their relationship to type 2 cell division and differentiation in normal and abnormal repair is not known. The authors now correlate measurements of type 2 cell basal surface, basement membrane continuity, and the incidence of epithelial-interstitial cell contacts with the proliferative index of type 2 cells and fibroblasts in normal repair (after hyperoxia) and in abnormal repair with fibrosis (after bleomycin or butylated hydroxytoluene). In each case, type 1 cell necrosis was followed by an increase in type 2 cell basal surface as the cells spread over the denuded capillary wall before dividing. After hyperoxia, a high but short-lived peak in type 2 cell division was not accompanied by fibrosis. After more severe drug-induced injury, the type 2 proliferative phase was extended and was accompanied by prolonged fibroblast growth. Type 2 cells persisted where they covered a thick interstitium of fibroblasts and fibrillar collagen. The incidence of epithelial-interstitial cell contacts decreased at the time of maximal type 2 cell division, then increased immediately after the peak. The results suggest a reciprocal epithelial-fibroblast control system whereby 1) epithelial necrosis and delayed repair promotes fibroblast growth, and 2) direct contact of epithelial cells with fibroblasts or fibrillar collagen may provide a factor important for the regulation of type 2 cell growth and differentiation.