Lipid-laden macrophages "foam cells" are observed in the lungs of patients with fibrotic lung disease but their contribution to disease pathogenesis remains unexplored. Here, we demonstrate that fibrosis induced by bleomycin, silica dust, or thoracic radiation promotes early and sustained accumulation of foam cells in the lung. In the bleomycin model, we show that foam cells arise from neighboring alveolar epithelial type II cells (ATII), which respond to injury by dumping lipids into the distal airspaces of the lungs. We demonstrate that oxidized phospholipids accumulate within alveolar macrophages (AM) after bleomycin injury, and that murine and human AMs treated with oxidized phosphatidylcholine (OxPc) become polarized along an M2 phenotype and display enhanced production of TGF-β1. The direct instillation of OxPc into the mouse lung induces foam cell formation and triggers a severe fibrotic reaction. Further, we show that reducing pulmonary lipid clearance by targeted deletion of the lipid efflux transporter ABCG1 increases foam cell formation and worsens lung fibrosis after bleomycin. Conversely, we found that treatment with GM-CSF attenuates fibrotic responses, at least in part through its ability to decrease AM lipid accumulation. In summary, this work describes a novel mechanism leading to foam cell formation in the mouse lung and suggests that strategies aimed at blocking foam cell formation might be effective for treating fibrotic lung disorders.