Disruption of alveolar type 2 cell (AEC2) protein quality control has been implicated in chronic lung diseases, including pulmonary fibrosis (PF). We previously reported the in vivo modeling of a clinical surfactant protein C (SP-C) mutation that led to AEC2 endoplasmic reticulum (ER) stress and spontaneous lung fibrosis, providing proof of concept for disruption to proteostasis as a proximal driver of PF. Using two clinical SP-C mutation models, we have now discovered that AEC2s experiencing significant ER stress lose quintessential AEC2 features and develop a reprogrammed cell state that heretofore has been seen only as a response to lung injury. Using single-cell RNA sequencing in vivo and organoid-based modeling, we show that this state arises de novo from intrinsic AEC2 dysfunction. The cell-autonomous AEC2 reprogramming can be attenuated through inhibition of inositol-requiring enzyme 1 (IRE1α) signaling as the use of an IRE1α inhibitor reduced the development of the reprogrammed cell state and also diminished AEC2-driven recruitment of granulocytes, alveolitis, and lung injury. These findings identify AEC2 proteostasis, and specifically IRE1α signaling through its major product XBP-1, as a driver of a key AEC2 phenotypic change that has been identified in lung fibrosis.