Lung transplantation remains the hope for many incurable pulmonary diseases, such as cystic fibrosis, pulmonary fibrosis, and chronic obstructive pulmonary disease. Remarkable progress has been made in improving outcomes, although the incidence of acute rejection remains more than 50% in the 1st year, and the 5-year graft survival is still less than 50% primarily because of the development of chronic rejection and graft dysfunction. Chronic rejection is characterized by the development of obliterative bronchiolitis in allografts and manifests as bronchiolitis obliterans syndrome in humans with no effective treatment. Previous studies support a role for alloreactive T cells in the development of bronchiolitis obliterans syndrome, but the specific mechanisms are unknown. One major stumbling block to research in the field of lung transplantation has been the lack of physiologic models to study the disease in the laboratory. We will review the current understanding of the immunology of the pathogenesis of obliterative bronchiolitis and will discuss exciting new advances from the laboratory as well as the implications for future research in lung transplantation.