Mutations of human telomerase RNA component (TERC) and telomerase reverse transcriptase (TERT) are associated with a subset of lung aging diseases, but the mechanisms by which TERC and TERT participate in lung diseases remain unclear. In this report, we show that knockout (KO) of the mouse gene TERC or TERT causes pulmonary alveolar stem cell replicative senescence, epithelial impairment, formation of alveolar sacs, and characteristic inflammatory phenotype. Deficiency in TERC or TERT causes a remarkable elevation in various proinflammatory cytokines, including IL-1, IL-6, CXCL15 (human IL-8 homolog), IL-10, TNF-alpha and monocyte chemotactic protein 1 (chemokine ligand 2, CCL2), decrease in TGF-beta1 and TGFbetaRI receptor in the lungs, and spillover of IL-6 and CXCL15 into the bronchoalveolar lavage fluids. In addition to increased gene expressions of alpha-smooth muscle actin (alpha-SMA) and collagen 1alpha1 (Col1alpha1) suggesting myofibroblast differentiation, TERC deficiency also leads to marked cellular infiltrations of a mononuclear cell population positive for the leukocyte common antigen CD45 (LCA), low-affinity Fc receptor CD16/CD32, and pattern recognition receptor CD11b in the lungs. Our data demonstrate for the first time that telomerase deficiency triggers alveolar stem cell replicative senescence-associated low-grade inflammation, thereby driving pulmonary premature aging, alveolar sac formation and fibrotic lesion.