Sleeping Beauty (SB) transposon is a natural nonviral gene transfer system that can mediate long‐term transgene expression. Its potential utility in treating organ transplantation‐associated long‐term complications has not yet been explored. In the present study we generated an improved SB transposon encoding the human gene indoleamine‐2,3‐dioxygenase (hIDO), an enzyme that possesses both T cell‐suppressive and antioxidant properties and selectively delivered the SB transposon in combination with a hyperactive transposase plasmid to donor lung using the cationic polymer polyethylenimine (PEI) as transfection reagent. This nonviral gene therapeutic approach led to persistent and uniform transgene expression in the rat lung tissue without noticeable toxicity and inflammation. Importantly, IDO activity produced by hIDO transgene showed a remarkable therapeutic response, as evident by near normal pulmonary function (peak airway pressure and oxygenation), histological appearance, and reduced collagen content in lung allografts. In addition, we established a hIDO‐overexpressing type II cell line using the SB‐based gene transfer system and found that hIDO‐overexpressing lung cells effectively inhibited transforming growth factor–stimulated fibroblast proliferation in vitro. In summary, the SB‐based gene therapy with hIDO represents a new strategy for treating lung transplantation‐associated chronic complications, e.g., obliterative bronchiolitis.—Liu, H., Liu, L., Fletcher, B. S., Visner, G. A. Sleeping Beauty‐based gene therapy with indoleamine 2,3‐dioxygenase inhibits lung allograft fibrosis. FASEB J. 20, E1694 –E1703 (2006)