The emission of cerium oxide nanoparticles (CeO2) from diesel engines, using cerium compounds as a catalyst to lower the diesel exhaust particles, is a health concern. We have previously shown that CeO2 induced pulmonary inflammation and lung fibrosis. The objective of the present study was to investigate the modification of fibroblast function and the role of epithelial-mesenchymal transition (EMT) in CeO2-induced fibrosis. Male Sprague-Dawley rats were exposed to CeO2 (0.15 to 7 mg/kg) by a single intratracheal instillation and sacrificed at various times post-exposure. The results show that at 28 days after CeO2 (3.5 mg/kg) exposure, lung fibrosis was evidenced by increased soluble collagen in bronchoalveolar lavage fluid, elevated hydroxyproline content in lung tissues, and enhanced sirius red staining for collagen in the lung tissue. Lung fibroblasts and alveolar type II (ATII) cells isolated from CeO2-exposed rats at 28 days post-exposure demonstrated decreasing proliferation rate when compare to the controls. CeO2 exposure was cytotoxic and altered cell function as demonstrated by fibroblast apoptosis and aggregation, and ATII cell hypertrophy and hyperplasia with increased surfactant. The presence of stress fibers, expressed as α-smooth muscle actin (SMA), in CeO2-exposed fibroblasts and ATII cells was significantly increased compared to the control. Immunohistofluorescence analysis demonstrated co-localization of TGF-β or α-SMA with prosurfactant protein C (SPC)-stained ATII cells. These results demonstrate that CeO2 exposure affects fibroblast function and induces EMT in ATII cells that play a role in lung fibrosis. These findings suggest potential adverse health effects in response to CeO2 nanoparticle exposure.