we introduce covariate adjusted regression (car) for situations where both predictors and response in a regression model are not directly observable, but are contaminated with a multiplicative factor that is determined by the value of an unknown function of an observable covariate. we demonstrate how the regression coefficients can be estimated by establishing a connection to varying coefficient regression. the proposed covariate adjustment method is illustrated with an analysis of the regression of plasma fibrinogen concentration as response on serum transferrin level as predictor for 69 hemodialysis patients. in this example, both response and predictor are thought to be influenced in a multiplicative fashion by body mass index. a bootstrap hypothesis test enables us to test the significance of the regression parameters. we establish the asymptotic distribution of the parameter estimates for this new covariate adjusted regression model.