Birt-Hogg-Dube (BHD) syndrome is caused by inactivating mutations in Folliculin (FLCN) gene. Up to 90% of BHD patients develop lung cysts and 30-35% develop pneumothorax. We have discovered that inactivation of FLCN in lung mesenchyme results in decreased postnatal alveolar growth and progressive cystic destruction. We previously found that Transcription Factor E3 (TFE3) regulates Wnt signaling in FLCN-deficient cells (Kennedy J, Khabibullin D et al, 2019). To investigate the roles of Tfe3 and Tfeb in mediating Flcn-inactivation induced abnormality in lung mesenchyme, we used a lung MSC line derived from a floxed-Flcn and mT/mG reporter mouse, in which Cre-mediated Flcn deletion and membrane GFP expression can be induced by exogeneous adenoviral-Cre expression. The GFP positive cells were purified by FACS sorting. We then knocked down Tfeb or Tfe3 expression in these cells using 2 different shRNAs and confirmed the knockdown with immunoblotting. Flcn-deficient MSCs grew 60-70% faster compared to control cells. Downregulation of Tfe3 or Tfeb was sufficient to prevent this proliferation. To identify transcriptional changes induced by Flcn deficiency and responsive to Tfe3/Tfeb, we performed RNA-seq. Flcn loss significantly upregulated 1,500 genes including Wnt7a (over 1,000-fold), Ppargc1a (25-fold) and Gpnmb (10-fold), and downregulated 1,600 genes. Remarkably, Tfe3 downregulation in Flcn-deficient cells reversed 75-80% of these changes in contrast to Tfeb downregulation, which reversed only 40% of the Flcn-dependent changes. These data suggest that Tfe3 is the critical downstream target of Flcn in MSC and may play a role in BHD-associated pulmonary cysts and pneumothorax via regulating gene expression.