Claudins, the integral tight junction (TJ) proteins that regulate paracellular permeability and cell polarity, are frequently dysregulated in cancer; however, their role in neoplastic progression is unclear. Here, we demonstrated that knockout of Cldn18, a claudin family member highly expressed in lung alveolar epithelium, leads to lung enlargement, parenchymal expansion, increased abundance and proliferation of known distal lung progenitors, the alveolar epithelial type II (AT2) cells, activation of Yes-associated protein (YAP), increased organ size, and tumorigenesis in mice. Inhibition of YAP decreased proliferation and colony-forming efficiency (CFE) of Cldn18^–/– AT2 cells and prevented increased lung size, while CLDN18 overexpression decreased YAP nuclear localization, cell proliferation, CFE, and YAP transcriptional activity. CLDN18 and YAP interacted and colocalized at cell-cell contacts, while loss of CLDN18 decreased YAP interaction with Hippo kinases p-LATS1/2. Additionally, Cldn18^–/– mice had increased propensity to develop lung adenocarcinomas (LuAd) with age, and human LuAd showed stage-dependent reduction of CLDN18.1. These results establish CLDN18 as a regulator of YAP activity that serves to restrict organ size, progenitor cell proliferation, and tumorigenesis, and suggest a mechanism whereby TJ disruption may promote progenitor proliferation to enhance repair following injury.