Idiopathic pulmonary fibrosis is a chronic and fatal disease that causes the stiffening of lung tissue and gradual lung function decline. Currently, there are no effectives therapies for this disease. Fibrotic lungs are characterized by accumulation of smooth muscle α actin- (SMA) expressing myofibroblasts and excessive deposition of a collagen rich extracellular matrix. The differentiation of lung fibroblasts into myofibroblasts is stimulated by numerous growth factors, including transforming growth factor β (TGFβ), and potentiated by a stiff mechanical environment. Our laboratory has identified a secreted matrix protein, aortic carboxypeptidase-like protein (ACLP), which is upregulated in idiopathic pulmonary fibrosis. Additionally, ACLP knockout mice are protected from experimentally induced fibrosis. This led to the hypothesis that ACLP promotes the fibroblast to myofibroblast transition, and the goal of this research was to characterize the mechanism of ACLP action. ACLP expression preceded SMA and collagen type I expression in rapidly differentiating primary mouse lung myofibroblasts. In gain of function studies, recombinant ACLP induced SMA and collagen I expression in both primary differentiating myofibroblasts as well as IMR90 human lung fibroblasts. ACLP knockdown by siRNA slowed myofibroblast differentiation and partially reverted fully differentiated myofibroblasts into fibroblasts. Because of the similarities among ACLP targets and TGFβ targets, it was hypothesized that ACLP stimulates TGFβ signaling. In lung fibroblasts, ACLP induced Smad3 phosphorylation and nuclear translocation, a feature of TGFβ signaling. The effects of ACLP on myofibroblast differentiation were dependent on TGFβ receptor (TβR) kinase activity and ACLP interacted directly with T&betaR II to promote myofibroblast differentiation. A recombinant TβR II Fc chimera was used to inhibit ACLP-induced SMA expression, but this reagent had no effect on ACLP-induced collagen type I expression, which suggests a differential regulation of SMA and collagen by ACLP. Additionally, ACLP modulated changes in differentiation between cells grown on softer versus stiffer matrices. Using recombinant fragments of the ACLP protein, the N-terminal thrombospondin repeat domain was found to be necessary and sufficient to promote myofibroblast differentiation. Taken together, these studies identified a novel mechanism of ACLP action in fibroblasts and may lead to new therapeutic strategies to treat fibrotic disease.