Stromal restraints to cancer are critical determinants of disease but they remain incompletely understood. Here, we report a novel mechanism for host surveillance against cancer contributed by fibroblast-specific protein 1 (FSP1)+ /S100A4+ fibroblasts. Mechanistic studies of fibrosarcoma formation caused by subcutaneous injection of the carcinogen methylcholanthrene (MCA) had suggested that IFN-γ receptor signaling may restrict MCA diffusion by inducing expression of collagen (foreign body reaction). We tested the hypothesis that this reaction encapsulated MCA and limited carcinogenesis by determining whether its ability to induce fibrosarcomas was impaired in the absence of proliferating fibroblasts. We found that FSP1+ /S100A4+ fibroblasts accumulated around the carcinogen where they produced collagens, encapsulating MCA and protecting epithelial cells from DNA damage. Ablation of these cells at the site of MCA injection by local administration of ganciclovir in FSP-TK transgenic mice altered tumor morphology to an epithelial phenotype, indicating that, in the absence of encapsulating fibroblasts, MCA targeted epithelial cells. Notably, we showed that destruction of the fibrous capsule around the MCA by local injection of collagenase induced rapid tumor development in mice that were otherwise durably tumor free. Our findings demonstrate that the FSP1+ /S100A4+ fibroblasts prevent epithelial malignancy and that collagen encapsulation of carcinogens protects against tumor development. Together, this study provides a novel mechanism for host surveillance against cancer.