The etiology of peripheral squamous cell lung cancer (PSCCa) remains unknown. Here, we show that this condition spontaneously develops in mice in which the genes for two oxysterol receptors, Liver X Receptor (LXR) α (Nr1h3) and β (Nr1h2), are inactivated. By 1 y of age, most of these mice have to be euthanized because of severe dyspnea. Starting at 3 mo, the lungs of LXRα,βDko mice, but not of LXRα or LXRβ single knockout mice, progressively accumulate foam cells, so that by 1 y, the lungs are covered by a “golden coat.” There is infiltration of inflammatory cells and progressive accumulation of lipid in the alveolar wall, type 2 pneumocytes, and macrophages. By 14 mo, there are three histological lesions: one resembling adenomatous hyperplasia, one squamous metaplasia, and one squamous cell carcinoma characterized by expression of transformation-related protein (p63), sex determining region Y-box 2 (Sox2), cytokeratin 14 (CK14), and cytokeratin 13 (CK13) and absence of thyroid transcription factor 1 (TTF1), and prosurfactant protein C (pro-SPC). RNA sequencing analysis at 12 mo confirmed a massive increase in markers of M1 macrophages and lymphocytes. The data suggest a previously unidentified etiology of PSCCa: cholesterol dysregulation and M1 macrophage-predominant lung inflammation combined with damage to, and aberrant repair of, lung tissue, particularly the peripheral parenchyma. The results raise the possibility that components of the LXR signaling may be useful targets in the treatment of PSCCa.