The tumor suppressor folliculin (FLCN) suppresses nuclear translocation of TFE3, a master transcription factor for lysosomal biogenesis, via regulation of amino-acid-sensing Rag GTPases. However, the importance of this lysosomal regulation in mammalian physiology remains unclear. Following hematopoietic-lineage-specific Flcn deletion in mice, we found expansion of vacuolated phagocytes that accumulate glycogen in their cytoplasm, phenotypes reminiscent of lysosomal storage disorder (LSD). We report that TFE3 acts in a feedback loop to transcriptionally activate FLCN expression, and FLCN loss disrupts this loop, augmenting TFE3 activity. Tfe3 deletion in Flcn knockout mice reduces the number of phagocytes and ameliorates LSD-like phenotypes. We further reveal that TFE3 stimulates glycogenesis by promoting the expression of glycogenesis genes, including Gys1 and Gyg, upon loss of Flcn. Taken together, we propose that the FLCN-TFE3 feedback loop acts as a rheostat to control lysosome activity and prevents excessive glycogenesis and LSD-like phagocyte activation.