Light- and electron-microscopic changes produced by hypersensitivity pneumonitis were analyzed in open lung biopsies taken from 18 patients with chronic forms of the disease. The main changes observed were: alveolitis (both luminal and mural), granulomas, intraalveolar buds, and interstitial fibrosis. The cells infiltrating the alveolar walls were mainly lymphocytes. Occasionally these lymphocytes presented irregularities in the contours of the nuclear membranes and resembled Sézary cells. In one patient, a few lymphocytes were found that resembled "hand-mirror" cells. Intraalveolar macrophages often had a foamy appearance. Granulomas, present in two-thirds of the patients, differed in several respects from those in sarcoidosis: they were smaller, more loosely arranged, and poorly limited; they had a higher content of lymphocytes; and they were located more frequently in alveolar tissue than in the vicinity of bronchioles and vessels. Intraalveolar buds, also present in about two thirds of the patients, were composed mainly of fibroblasts, myofibroblasts, and macrophages in a loose connective tissue that was rich in proteoglycan material. Capillaries and epithelial cells were rarely seen in buds. Alveolar buds appear to develop by a process of disruption of the epithelial lining layer, due to alveolitis, followed by intraalveolar exudation and by subsequent intraalveolar migration of connective tissue cells interacting with macrophages. Severe fibrotic and alveolar epithelial changes were observed in four patients; milder changes were frequent in most other patients. It is concluded that hypersensitivity pneumonitis usually has distinctive morphologic features; these may help to distinguish the resultant pulmonary fibrosis from that due to other causes.