Background: Chronic allograft nephropathy (CAN) is the primary cause for late kidney allograft loss. Carbon monoxide (CO), a product of heme metabolism by heme oxygenases, is known to impart protection against various stresses. We hypothesized that CO could minimize the chronic fibro-inflammatory process and protect kidney allografts from CAN. Methods: Lewis kidney grafts were orthotopically transplanted into binephrectomized Brown-Norway (BN) rats under short course tacrolimus. Recipients were maintained in room air or exposed to CO at 20 ppm for 30 days after transplant. Efficacy of inhaled CO was studied at d30 and d80. Results: Isografts maintained normal kidney function throughout the experiment with creatinine clearance (Ccr) of ~1.5 cc/ml. Renal allograft function in air controls progressively deteriorated and Ccr declined to 0.2±0.1 cc/ml by d80 with substantial proteinuria. CO-treated animals had significantly better Ccr (1.3±0.2 cc/ml) with minimal proteinuria. Histological examination revealed the development of progressive CAN in air-exposed grafts, while CO-treated grafts had minimal tubular atrophy and interstitial fibrosis, with negligible collagen IV deposition. In vitro analyses revealed that CO-treated recipients had significantly less T cell proliferation against donor peptides via the indirect allorecognition pathway and less anti-donor IgG antibodies compared to air controls. Intragraft mRNA levels for chemokines (RANTES, MIP-1), chemokine receptors (CCR1, CXCR3, CXCR5), IL-2 and ICAM-1 were significantly decreased in CO-treated than air-treated allografts. Further, reduction of blood flow in air-treated allografts was prevented with CO. Conclusions: Inhaled CO at a low concentration efficiently abrogates chronic fibro-inflammatory changes associated with CAN and improves long-term renal allograft function.