Introduction There is now increasing evidence that proximal tubular cells (PTCs) contribute to renal interstitial fibrosis by alteration of matrix turnover and by the generation of pro‐fibrotic cytokines such as TGF‐β1. Recent studies suggest that, through a process of transdifferentiation, the PTCs are one source of the interstitial myofibroblasts that directly drive the fibrotic process. The aim of this work was to examine the role and mechanism by which TGF‐β1 may regulate PTC phenotype and function.Methods Experiments were performed using both primary‐cultures of PTC and the human PTC cell line HK2. All experiments were performed on growth‐arrested cells in the absence of serum.Results TGF‐β1 altered cell phenotype, assessed by light microscopy, with cells appearing elongated and spindle‐shaped. This was associated with loss of cell–cell contact and rearrangement of the actin cytoskeleton, increased formation of stress fibres and focal adhesions. Disruption of the actin cytoskeleton with cytochalasin‐D prevented phenotypic alterations following addition of TGF‐β1. Transient transfection with Smad‐2/‐4 or Smad‐3/‐4 expression vectors did not alter cell phenotype. Previously, we have demonstrated β‐catenin translocation to PTC nuclei and its association with Smad proteins following addition of TGF‐β1, suggesting the possibility that TGF‐β1 may modulate Wnt signalling. Wnt‐responsive Xtwn‐reporter construct was, however, silent in response to TGF‐β1. Similarly, a second Wnt‐/LEF‐1‐regulated element Toplflash, which does not contain Smad‐binding sites, was insensitive to TGF‐β1 signalling. In contrast, phenotypic changes in response to TGF‐β1 were abrogated by inhibitors of the RhoA downstream target ROCK, which also prevented loss of cell–cell contact and adherens junction disassembly. Removal of TGF‐β1 and addition of 1% FCS, however, reverted cell phenotype to a typical cobblestone epitheliod appearance, suggesting that TGF‐β1 did not result in terminal PTC transdifferentiation. Cells grown on tissue culture dishes coated with either type‐I or type‐III collagen also acquired an elongated fibroblastic phenotype; this effect was exaggerated by the addition of TGF‐β1. In contrast to the cells stimulated with TGF‐β1 alone, following stimulation by both TGF‐β1 and exposure to interstitial collagens, cell phenotype was stable in that it was not reversed upon removal of TGF‐β1 and addition of FCS. Addition of TGF‐β1 to cells grown on type‐IV collagen had no greater effect than TGF‐β1 alone. Addition of TGF‐β1 alone had little effect on the expression of α‐SMA. In contrast, cells grown on either type‐I or type‐III collagen, following addition of TGF‐β1, demonstrated marked increased expression of α‐SMA, which appeared to be incorporated into the cell cytoskeleton. Similarly, the combination of interstitial collagen (either type‐I or type‐III) and TGF‐β1 had synergistic effect on the relocation and down‐regulation of the epithelial markers E‐cadherin and cytokeratin. Finally, the results demonstrated synergistic effects of coating with interstitial collagen (either type‐I or type‐III), on cell ‘fibroblastic’ cell function as assessed by cell migration and by the synthesis of type‐III and type‐IV collagen.Conclusion The results of these in vitro experiments suggest that terminal transdifferentiation of proximal tubular epithelial cells is the result of a combination of the effects of the pro‐fibrotic cytokine TGF‐β1 and exposure of the cells to components of the interstitial extra‐cellular matrix to which the cells are not exposed in the absence of damage to the tubular basement membrane.