Idiopathic pulmonary fibrosis (IPF) is a progressive interstitial lung disease in which repetitive epithelial injury and incomplete alveolar repair result in accumulation of profibrotic intermediate/transitional "aberrant" epithelial cell states. The mechanisms leading to the emergence and persistence of aberrant epithelial populations in the distal lung remain incompletely understood. By interrogating single-cell RNA sequencing (scRNA-seq) data from patients with IPF and a mouse model of repeated lung epithelial injury, we identified persistent activation of hypoxia-inducible factor (HIF) signaling in these aberrant epithelial cells. Using mouse genetic lineage-tracing strategies together with scRNA-seq, we found that these disease-emergent aberrant epithelial cells predominantly arose from airway-derived (Scgb1a1-CreER-traced) progenitors and exhibited transcriptional programs of Hif2a activation. In mice treated with repetitive intratracheal bleomycin, deletion of Epas1 (Hif2a) but not Hif1a, from airway-derived progenitors, or administration of the small-molecule HIF2 inhibitor PT-2385, using both prevention and rescue approaches, attenuated experimental lung fibrosis, reduced the appearance of aberrant epithelial cells, and promoted alveolar repair. In mouse alveolar organoids, genetic or pharmacologic inhibition of Hif2 promoted alveolar differentiation of airway-derived epithelial progenitors. In addition, treatment of human distal lung organoids with PT-2385 increased colony-forming efficiency, enhanced protein and transcriptional markers of alveolar type 2 epithelial cell maturation, and prevented the emergence of aberrant epithelial cells. Together, these studies showed that HIF2 activation drives the emergence of aberrant epithelial populations after repetitive injury and that targeted HIF2 inhibition may represent an effective therapeutic strategy to promote functional alveolar repair in IPF and other interstitial lung diseases.