In age-related macular degeneration (AMD), hydroquinone (HQ)-induced oxidative damage in retinal pigment epithelium (RPE) is believed to be an early event contributing to dysregulation of inflammatory cytokines and vascular endothelial growth factor (VEGF) homeostasis. However, the roles of antioxidant mechanisms, such as autophagy and the ubiquitin-proteasome system, in modulating HQ-induced oxidative damage in RPE is not well-understood. This study utilized an in-vitro AMD model involving the incubation of human RPE cells (ARPE-19) with HQ. In comparison to hydrogen peroxide (H2O2), HQ induced fewer reactive oxygen species (ROS) but more oxidative damage as characterized by protein carbonyl levels, mitochondrial dysfunction, and the loss of cell viability. HQ blocked the autophagy flux and increased proteasome activity, whereas H2O2 did the opposite. Moreover, the lysosomal membrane-stabilizing protein LAMP2 and cathepsin D levels declined with HQ exposure, suggesting loss of lysosomal membrane integrity and function. Accordingly, HQ induced lysosomal alkalization, thereby compromising the acidic pH needed for optimal lysosomal degradation. Pretreatment with MG132, a proteasome inhibitor and lysosomal stabilizer, upregulated LAMP2 and autophagy and prevented HQ-induced oxidative damage in wildtype RPE cells but not cells transfected with shRNA against ATG5. This study demonstrated that lysosomal dysfunction underlies autophagy defects and oxidative damage induced by HQ in human RPE cells and supports lysosomal stabilization with the proteasome inhibitor MG132 as a potential remedy for oxidative damage in RPE and AMD.