Kidney allograft fibrosis is a manifestation of chronic kidney disease (CKD) and predicts functional decline, and eventual allograft failure. This study evaluates whether spectral diffusion magnetic resonance imaging (MRI) detects early development and mild/moderate fibrosis in kidney allografts. In a prospective two-center study of kidney allografts, pathologic interstitial fibrosis and tubular atrophy (IFTA) was scored and eGFR was calculated from serum creatinine. Multi-b-value diffusion-weighted imaging (DWI) ( \({\text{bvalues}}=[0,10,30,50,80,120,200,400,800{\text{m}}{{\text{m}}^2}/{\text{s}}\) ]) was post-processed with spectral diffusion, intravoxel incoherent motion (IVIM), and apparent diffusion coefficient (ADC). Relationships between imaging parameters and biological processes were measured by Mann-Whitney U-test and Spearman’s rank; diagnostic ability was measured by five-fold cross-validation univariate and multi-variate logistic regression. Quality control analyses included volunteer MRI (n = 4) and inter-observer analysis (n = 19). 99 patients were included (50 ± 13yrs, 64 M/35F, 39 IFTA = 0, 22 IFTA = 2, 20 IFTA = 4, 18 IFTA = 6, 46 eGFR ≤ 45mL/min/1.73m2, mean eGFR = 47.5 ± 21.3mL/min/1.73m2). Spectral diffusion detected fibrosis ( \({\text{IFTA}}>0\) ) in patients with normal/stable \({\text{eGFR}}>45{\text{ml}}/{\text{min}}/1.73{{\text{m}}^2}\) [ \(\text{AUC}\,(95\%\,\text{CI}) = 0.72\,(0.56,\,0.87), \quad p = 0.007\) ]. Spectral diffusion detected mild/moderate fibrosis (IFTA=2–4) [ \(\text{AUC}\,(95\%\,\text{CI}) = 0.65\,(0.52,\,0.71), \quad p = 0.023\) ], as did ADC [ \(\text{AUC}\,(95\%\,\text{CI}) = 0.71\,(0.54,\,0.87), \quad p = 0.013\) ]. eGFR, time-from-transplant, and allograft size could not. Interobserver correlation was ≥ 0.50 in 24/40 diffusion parameters. Spectral diffusion MRI showed detection of mild/moderate fibrosis and fibrosis before decline in function. It is a promising method to detect early development of fibrosis and CKD before progression.