Tissue homeostasis requires lineage fidelity of stem cells. Dysregulation of cell fate specification and differentiation leads to various diseases, yet the cellular and molecular mechanisms governing these processes remain elusive. We demonstrate that YAP/TAZ activation reprograms airway secretory cells, which subsequently lose their cellular identity and acquire squamous alveolar type 1 (AT1) fate in the lung. This cell fate conversion is mediated via distinctive transitional cell states of damage-associated transient progenitors (DATPs), recently shown to emerge during injury repair in mouse and human lungs. We further describe a YAP/TAZ signaling cascade to be integral for the fate conversion of secretory cells into AT1 fate, by modulating mTORC1/ATF4-mediated amino acid metabolism in vivo. Importantly, we observed aberrant activation of the YAP/TAZ-mTORC1-ATF4 axis in the altered airway epithelium of bronchiolitis obliterans syndrome, including substantial emergence of DATPs and AT1 cells with severe pulmonary fibrosis. Genetic and pharmacologic inhibition of mTORC1 activity suppresses lineage alteration and subepithelial fibrosis driven by YAP/TAZ activation, proposing a potential therapeutic target for human fibrotic lung diseases.