Our aim was to study the impact of subclinical inflammation on the development of interstitial fibrosis and tubular atrophy (IF/TA) on a 1-year protocol biopsy in patients on rapid steroid withdrawal (RSW). A total of 256 patients were classified based on protocol biopsy findings at months 1 or 4. Group 1 is 172 patients with no inflammation, group 2 is 50 patients with subclinical inflammation (SCI), group 3 is 19 patients with subclinical acute rejection (SAR) and group 4 is 15 patients with clinical acute rejection (CAR). On the 1-year biopsy, more patients in group 2 (SCI) (34%, p = 0.004) and group 3 (SAR) (53%, p = 0.0002), had an IF/TA score > 2 compared to group 1 (control) (15%). IF/TA was not increased in group 4 (CAR) (20%). The percent with IF/TA score > 2 and interstitial inflammation (Banff i score > 0) was higher in group 2 (16%, p = 0.004) and group 3 (37%, p < 0.0001) compared to group 1 (3%). In a multivariate analysis, patients in groups 2 or 3 had a higher risk of IF/TA score > 2 on the 1-year biopsy (OR 6.62, 95% CI 2.68–16.3). We conclude that SCI and SAR increase the risk of developing IF/TA in patient on RSW.