Alveolar type II (AT2) cell dysfunction contributes to a number of significant human pathologies including respiratory distress syndrome, lung adenocarcinoma, and debilitating fibrotic diseases, but the critical transcription factors that maintain AT2 cell identity are unknown. Here we show that the E26 transformation-specific (ETS) family transcription factor Etv5 is essential to maintain AT2 cell identity. Deletion of Etv5 from AT2 cells produced gene and protein signatures characteristic of differentiated alveolar type I (AT1) cells. Consistent with a defect in the AT2 stem cell population, Etv5 deficiency markedly reduced recovery following bleomycin-induced lung injury. Lung tumorigenesis driven by mutant KrasG12D was also compromised by Etv5 deficiency. ERK activation downstream of Ras was found to stabilize Etv5 through inactivation of the cullin-RING ubiquitin ligase CRL4^COP1/DET1 that targets Etv5 for proteasomal degradation. These findings identify Etv5 as a critical output of Ras signaling in AT2 cells, contributing to both lung homeostasis and tumor initiation.