In the past year there has been considerable progress in defining the morphologic characteristics of the normally functioning renal allograft in the cyclosporine era. Based on these characteristics and knowledge of clinically validated important changes in rejection, internationally agreed upon standardized terms and criteria have been developed for the histologic diagnosis of acute and chronic rejection and allied conditions. Chronic changes observed in normally functioning grafts at 2 years posttransplantation have been shown to predict the presence of renal functional impairment for 4 years. Important new rejection changes have been identified in the peritubular capillaries. Various alternatives to core biopsy have been explored, but no technique as yet has sufficient sensitivity and specificity for general use in rejection diagnosis. The accurate distinction of chronic rejection from other conditions remains a challenge for the future.