Activated fibroblasts are key contributors to the fibrotic extracellular matrix accumulation during liver fibrosis. The origin of such fibroblasts is still debated, although several studies point to stellate cells as the principal source. The role of adult hepatocytes as contributors to the accumulation of fibroblasts in the fibrotic liver is yet undetermined. Here, we provide evidence that the pro-fibrotic growth factor, TGF-beta1, induces adult mouse hepatocytes to undergo phenotypic and functional changes typical of epithelial to mesenchymal transition (EMT). We perform lineage-tracing experiments using AlbCre. R26RstoplacZ double transgenic mice to demonstrate that hepatocytes which undergo EMT contribute substantially to the population of FSP1-positive fibroblasts in CCL(4)-induced liver fibrosis. Furthermore, we demonstrate that bone morphogenic protein-7 (BMP7), a member of the TGFbeta superfamily, which is known to antagonize TGFbeta signaling, significantly inhibits progression of liver fibrosis in these mice. BMP7 treatment abolishes EMT-derived fibroblasts, suggesting that the therapeutic effect of BMP7 was at least partially due to the inhibition of EMT. These results provide direct evidence for the functional involvement of adult hepatocytes in the accumulation of activated fibroblasts in the fibrotic liver. Furthermore, our findings suggest that EMT is a promising therapeutic target for the attenuation of liver fibrosis.