Abstract One of the most important goals of developing timely detection and effective intervention strategies for lung cancer is to understand the biology and molecular mechanisms involved in early-stage evolution of this disease. Chronic inflammation is a major driver of lung cancer and contributes to its pathogenesis by inducing genetic and epigenetic abnormalities, as well as shifts in key immune cell populations. However, the evolution of these changes and the mechanisms underlying the early stages in development of pre-neoplasias and progression to invasive tumors have not been well delineated. Monolayer cell culture systems, while providing valuable insights into lung cancer development, lack the complexity of an intact organ system. This study aims to overcome these limitations by using a 3D lung organoid model to delineate the role of epigenetic alterations in driving initiation of non-small cell lung cancer. The stem cell enriched nature of the organoids makes it an ideal system to evaluate the implications of epigenetic alterations in these key cell types and their role in cancer initiation. To better identify the epigenetic alterations that play key roles in lung cancer initiation, cigarette smoke condensate (CSC) was applied to normal lung organoids to mimic chronic inflammatory exposure. Epigenomic and transcriptomic alterations were evaluated by genome-wide DNA methylation analysis, ATAC-seq, and RNA-seq. Flow cytometry and confocal microscopy were used to evaluate changes in composition of cell populations comprising the organoids. Long-term CSC exposure caused distinct morphological changes in organoid structure and cellular composition, accompanied by an increased proliferative potential. Analysis of changes in cell composition revealed increases in Krt14 expression in CSC treated organoids, leading to key shifts in basal stem cell populations from a TP63+KRT5+ to a TP63+KRT5+KRT14+ population. This was accompanied by reduction in differentiated cell types, as analyzed by qRT-PCR. Analysis of genome wide DNA methylation showed increases in promoter DNA methylation in key genes associated with lung tumorigenesis. Most importantly, co-culture studies involving culturing CSC treated and control organoids with key immune cells revealed that chronic CSC treatment caused modulation of the microenvironment from a pro- to an anti-inflammatory state. Our results suggest that chronic inflammation causes key shifts in populations of lung stem cells with an associated decrease in differentiation potential. These changes are accompanied by DNA methylation and gene expression changes suggestive of an increased tumorigenic potential. Finally, these changes in the CSC treated organoids are associated with the ability to modulate the function of key immune cells associated with lung tumorigenesis from a pro- to an anti-inflammatory phenotype. Results from our study, will aid in developing novel biomarker-based methodologies to distinguish and treat lung cancer in its early stages. Citation Format: Na Wang, Ray-Whay Chiu Yen, Hamza Khan, Malcolm V. Brock, Hariharan Easwaran, Stephen B. Baylin, Michelle Vaz. Characterizing the role of inflammation-induced epigenetic alterations in modulating the immune microenvironment during lung cancer initiation [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2023; Part 2 (Clinical Trials and Late-Breaking Research); 2023 Apr 14-19; Orlando, FL. Philadelphia (PA): AACR; Cancer Res 2023;83(8_Suppl):Abstract nr LB046.