Alveolar type II epithelial (AT2) cells lie at the centre of alveolar maintenance and function. These metabolically active cells primarily function to produce and secrete surfactant, an essential phospholipid-rich compound that maintains surface tension, preventing alveolar collapse. Accumulating evidence illustrates a role for AT2 cell dysfunction and senescence in several chronic lung diseases, including Idiopathic Pulmonary Fibrosis (IPF). Interestingly, disrupted iron homeostasis is implicated in IPF pathogenesis, yet the interplay between iron levels and dysfunctional AT2 cells is poorly understood. Here we show manipulating iron levels in AT2 cells alters their function both in vitro and in vivo. Iron-loaded MLE12 cells, a murine AT2 cell line, have a reduced wound healing capacity, and increased secretion of surfactant protein C (SftpC) coupled with a decrease in surfactant lipid uptake. Decreased intracellular iron levels in MLE12 cells have varying effects on function depending on the mechanism by which iron is reduced. Deferoxamine (DFX) chelation, induces the upregulation of senescent and pro-fibrotic markers with the opposite being observed for the intracellular iron chelator deferiprone (DFP). Depletion of mitochondrial iron transporters in AT2 cells both in vitro and in vivo results in a similar senescent/fibrotic phenotype. Using a lung injury and fibrosis model, namely bleomycin insult, drives iron-overload, cellular senescence, and decreased SFTPC levels in vitro. However, isolated AT2 cells, from bleomycin-exposed mice, present with decreased intracellular iron levels. Overall, these findings underscore the significant involvement of iron in AT2 biology, emphasizing the complexity of how iron dyshomeostasis contributes to AT2 dysfunction in disease.