Objective: To investigate the role and mechanism of Iguratimod in interstitial fibrosis of chronic allograft dysfunction (CAD) in transplanted kidneys. Methods: We constructed and validated a mouse model of chronic allograft dysfunction. Iguratimod was administered via gavage. Histological staining was used to assess injury and fibrosis in transplanted kidneys. Immunofluorescence staining , Western blot, and qRT-PCR were utilized to detect fibrosis markers and changes in macrophage-to-myofibroblast transition (MMT) in the transplanted kidneys of CAD mice. TGF-β was used to induce MMT in primary mouse bone marrow-derived macrophages (BMDMs) in vitro, followed by Iguratimod intervention. Transcriptome sequencing was employed to explore the downstream molecular mechanisms by which Iguratimod regulates MMT. Results: We successfully constructed and validated the mouse CAD model. HE, PAS, and Masson staining revealed significant interstitial fibrosis in the transplanted kidneys of CAD mice at 16 weeks post-transplantation. Immunofluorescence staining showed a significant upregulation of MMT in the transplanted kidneys. However, Iguratimod treatment significantly reduced interstitial fibrosis and the number of MMT cells in CAD mice at 16 weeks. In vitro experiments indicated that Iguratimod significantly reduced TGF-β-induced MMT. Transcriptome sequencing results suggested that Iguratimod mitigates fibrosis by inhibiting MMT via the ferroptosis-related pathway. Conclusion: We successfully constructed and validated a mouse CAD model. Iguratimod alleviates interstitial fibrosis in transplanted kidneys and slows the progression of CAD by upregulating the ferroptosis-related pathway to inhibit MMT. This may provide new insights for the further application of Iguratimod in allograft kidney transplantation.