Sarcoidosis is a granulomatous systemic disorder most often affecting the lung. Pulmonary fibrosis develops in approximately 10%–15% of patients with sarcoidosis. The human gene GREM1 encodes gremlin, a member of the bone morphogenetic protein antagonist family. Bone morphogenetic proteins are essential for the maintenance of tissue homeostasis and regeneration after injury. We examined associations between genetic variation in GREM1 and pulmonary disease outcome in patients with pulmonary sarcoidosis. Four common tag single nucleotide polymorphisms spanning GREM1 were genotyped in 483 controls and in 237 sarcoidosis patients with radiographic data at pulmonary disease outcome, defined by chest X‐ray after a minimum of 4 years follow‐up. Highly significant differences were found between GREM1 genotype frequencies in sarcoidosis patients without chest X‐ray abnormalities (stage 0) (n = 116) versus patients who had fibrosis on chest X‐ray (stage IV) (n = 59) at pulmonary disease outcome. The most significant association was with GREM1 rs1919364. The recessive model resulted in an increased risk of fibrosis development for homozygous carriers of the C allele at GREM1 rs1919364 versus carriers of the G allele [P = 9.3 × 10⁻⁷, χ² = 24.1, odds ratio (OR) = 6.37 (2.89–14.1)]. This study is the first to suggest that genetic variation of GREM1 predisposes to pulmonary fibrosis in sarcoidosis patients. Carriers of the GREM1 CC genotype at position rs1919364 were at 6.4 times greater risk for developing fibrosis.