Transcriptional coactivator with a PDZ-binding motif (TAZ) plays a key role in normal tissue homeostasis and tumorigenesis through interaction with several transcription factors. In particular, TAZ deficiency causes abnormal alveolarization and emphysema, and persistent TAZ overexpression contributes to lung cancer and pulmonary fibrosis, suggesting the possibility of a complex mechanism of TAZ function. Recent studies suggest that nuclear factor erythroid 2-related factor 2 (NRF2), an antioxidant defense system, induces TAZ expression during tumorigenesis and that TAZ also activates the NRF2-mediated antioxidant pathway. We thus thought to elucidate the cross-regulation of TAZ and NRF2 and the underlying molecular mechanisms and functions. TAZ directly interacted with NRF2 through the N-terminal domain and suppressed the transcriptional activity of NRF2 by preventing NRF2 from binding to DNA. In addition, the return of NRF2 to basal levels after signaling was inhibited in TAZ deficiency, resulting in sustained nuclear NRF2 levels and aberrantly increased expression of NRF2 targets. TAZ deficiency failed to modulate optimal NRF2 signaling and concomitantly impaired lysosomal acidification and lysosomal enzyme function, accumulating the abnormal autophagy vesicles and reactive oxygen species and causing protein oxidation and cellular damage in the lungs. TAZ restoration to TAZ deficiency normalized dysregulated NRF2 signaling and aberrant lysosomal function and triggered the normal autophagy-lysosomal pathway. Therefore, TAZ is indispensable for the optimal regulation of NRF2-mediated autophagy-lysosomal pathways and for preventing pulmonary damage caused by oxidative stress and oxidized proteins.