Myofibroblasts produce and modify the extracellular matrix (ECM), secrete angiogenic and pro‐inflammatory factors, and stimulate epithelial cell proliferation and invasion. Myofibroblasts are normally induced transiently during wound healing, but inappropriate induction of myofibroblasts causes organ fibrosis, which greatly enhances the risk of subsequent cancer development. As myofibroblasts are also found in the reactive tumor stroma, the processes involved in their development and activation are an area of active investigation. Emerging evidence suggests that a major source of fibrosis‐ and tumor‐associated myofibroblasts is through transdifferentiation from non‐malignant epithelial or epithelial‐derived carcinoma cells through epithelial‐mesenchymal transition (EMT). This review will focus on the role of EMT in fibrosis, considered in the context of recent studies showing that exposure of epithelial cells to matrix metalloproteinases (MMPs) can lead to increased levels of cellular reactive oxygen species (ROS) that stimulate transdifferentiation to myofibroblast‐like cells. As deregulated MMP expression and increased cellular ROS are characteristic of both fibrosis and malignancy, these studies suggest that increased MMP expression may stimulate fibrosis, tumorigenesis, and tumor progression by inducing a specialized EMT in which epithelial cells transdifferentiate into activated myofibroblasts. This connection provides a new perspective on the development of the fibrosis and tumor microenvironments. J. Cell. Biochem. 101: 830–839, 2007. © 2007 Wiley‐Liss, Inc.