Endoplasmic reticulum (ER) stress has been implicated in alveolar epithelial type II (AT2) cell apoptosis in idiopathic pulmonary fibrosis. We hypothesized that ER stress (either chemically induced or due to accumulation of misfolded proteins) is also associated with epithelial–mesenchymal transition (EMT) in alveolar epithelial cells (AECs). ER stress inducers, thapsigargin (TG) or tunicamycin (TN), increased expression of ER chaperone, Grp78, and spliced X-box binding protein 1, decreased epithelial markers, E-cadherin and zonula occludens–1 (ZO-1), increased the myofibroblast marker, α–smooth muscle actin (α-SMA), and induced fibroblast-like morphology in both primary AECs and the AT2 cell line, RLE-6TN, consistent with EMT. Overexpression of the surfactant protein (SP)–C BRICHOS mutant SP-C^ΔExon4 in A549 cells increased Grp78 and α-SMA and disrupted ZO-1 distribution, and, in primary AECs, SP-C^ΔExon4 induced fibroblastic-like morphology, decreased ZO-1 and E-cadherin and increased α-SMA, mechanistically linking ER stress associated with mutant SP to fibrosis through EMT. Whereas EMT was evident at lower concentrations of TG or TN, higher concentrations caused apoptosis. The Src inhibitor, 4-amino-5-(4-chlorophenyl)-7-(t-butyl)pyrazolo[3,4]pyramidine) (PP2), abrogated EMT associated with TN or TG in primary AECs, whereas overexpression of SP-C^ΔExon4 increased Src phosphorylation, suggesting a common mechanism. Furthermore, increased Grp78 immunoreactivity was observed in AT2 cells of mice after bleomycin injury, supporting a role for ER stress in epithelial abnormalities in fibrosis in vivo. These results demonstrate that ER stress induces EMT in AECs, at least in part through Src-dependent pathways, suggesting a novel role for ER stress in fibroblast accumulation in pulmonary fibrosis.