BACKGROUND: Acute lung allograft dysfunction (ALAD) is an imprecise syndrome denoting concern for the onset of chronic lung allograft dysfunction (CLAD). Mechanistic biomarkers are needed that stratify risk of ALAD progression to CLAD. We hypothesized that single cell investigation of bronchoalveolar lavage (BAL) cells at the time of ALAD would identify immune cells linked to progressive graft dysfunction. METHODS: We prospectively collected BAL from consenting lung transplant recipients for single cell RNA sequencing. ALAD was defined by a ≥10% decrease in FEV1 not caused by infection or acute rejection and samples were matched to BAL from recipients with stable lung function. We examined cell compositional and transcriptional differences across control, ALAD with decline, and ALAD with recovery groups. We also assessed cell-cell communication. RESULTS: BAL was assessed for 17 ALAD cases with subsequent decline (ALAD declined), 13 ALAD cases that resolved (ALAD recovered), and 15 cases with stable lung function. We observed broad differences in frequencies of the 26 unique cell populations across groups (p = 0.02). A CD8 T cell (p = 0.04) and a macrophage cluster (p = 0.01) best identified ALAD declined from the ALAD recovered and stable groups. This macrophage cluster was distinguished by an anti-inflammatory signature and the CD8 T cell cluster resembled a Tissue Resident Memory subset. Anti-inflammatory macrophages signaled to activated CD8 T cells via class I HLA, fibronectin, and galectin pathways (p < 0.05 for each). Recipients with discordance between these cells had a nearly 5-fold increased risk of severe graft dysfunction or death (HR 4.6, 95% CI 1.1-19.2, adjusted p = 0.03). We validated these key findings in 2 public lung transplant genomic datasets. CONCLUSIONS: BAL anti-inflammatory macrophages may protect against CLAD by suppressing CD8 T cells. These populations merit functional and longitudinal assessment in additional cohorts.