Smooth Material Change

By the title I mean if you have played TF2 you have most likely seen that when the spy goes invisible his material smoothly changes from normal to cloaked instead of it being instantly changed. Is it possible to do this in Gmod?

What are you talking about are material proxies,involved in the cloak effect and in the crit glow.
If you asked this like two weeks ago,you would have received no answer,some days ago Chrisaster released a fantastic module to let Lua handle the material proxies.
http://www.facepunch.com/threads/1051631-gmcl_matproxy-Dynamic-Material-Proxy-Factory
The module is completely clientside,it comes along with an example with the spy’s cloak effect,learn from it and you will be able to create a simple tool to toggle the cloak effect on any tf2 props/ragdolls (at least,the ones that use this effect).

Cheers.