Analysis of lung alveolar type 2 (AT2) progenitor stem cells has highlighted fundamental mechanisms that direct their differentiation into alveolar type 1 cells (AT1s) in lung repair and disease. However, microRNA (miRNA) mediated post-transcriptional mechanisms which govern this nexus remain understudied. We show here that the miRNA family serves a homeostatic role in governance of AT2 quiescence, specifically by preventing the uncontrolled accumulation of AT2 transitional cells and by promoting AT1 differentiation. Using mice and organoid models, we demonstrate genetic ablation of cluster () in AT2 cells prevents AT1 differentiation and results in accumulation of AT2 transitional cells in progressive pulmonary fibrosis. Integration of AGO2-eCLIP with RNA-sequencing from AT2 cells uncovered the induction of direct targets of in an oncogene feed-forward regulatory network including BACH1/EZH2/MYC which drives an aberrant fibrotic cascade. Additional analyses using CUT&RUN-sequencing revealed an epigenetic role of in induction of chromatin histone acetylation and methylation and maladaptive AT2 cell reprogramming. This study identifies as a key gatekeeper of post-transcriptional and epigenetic chromatin signals to prevent AT2-driven pulmonary fibrosis.