Lung development, integrity and repair rely on precise Wnt signaling, which is corrupted in diverse diseases, including cancer. Here, we discover that EHMT2 methyltransferase regulates Wnt signaling in the lung by controlling the transcriptional activity of chromatin-bound β-catenin, through a non-histone substrate in mouse lung. Inhibition of EHMT2 induces transcriptional, morphologic, and molecular changes consistent with alveolar type 2 (AT2) lineage commitment. Mechanistically, EHMT2 activity functions to support regenerative properties of KrasG12D tumors and normal AT2 cells—the predominant cell of origin of this cancer. Consequently, EHMT2 inhibition prevents KrasG12D lung adenocarcinoma (LUAD) tumor formation and propagation and disrupts normal AT2 cell differentiation. Consistent with these findings, low gene EHMT2 expression in human LUAD correlates with enhanced AT2 gene expression and improved prognosis. These data reveal EHMT2 as a critical regulator of Wnt signaling, implicating Ehmt2 as a potential target in lung cancer and other AT2-mediated lung pathologies.