Chronic obstructive pulmonary disease (COPD) is a debilitating lung disease with no effective treatment that can reduce mortality or slow the disease progression. COPD is the third leading cause of global death and is characterized by airflow limitations due to chronic bronchitis and alveolar damage/emphysema. Chronic cigarette smoke (CS) exposure damages airway and alveolar epithelium and remains a major risk factor for the pathogenesis of COPD. We found that the expression of caveolin-1, a tumor suppressor protein; p53; and plasminogen activator inhibitor-1 (PAI-1), one of the downstream targets of p53, was markedly increased in airway epithelial cells (AECs) as well as in type II alveolar epithelial (AT2) cells from the lungs of patients with COPD or wild-type mice with CS-induced lung injury (CS-LI). Moreover, p53- and PAI-1-deficient mice resisted CS-LI. Furthermore, treatment of AECs, AT2 cells, or lung tissue slices from patients with COPD or mice with CS-LI with a seven amino acid caveolin-1 scaffolding domain peptide (CSP7) reduced mucus hypersecretion in AECs and improved AT2 cell viability. Notably, induction of PAI-1 expression via increased caveolin-1 and p53 contributed to mucous cell metaplasia and mucus hypersecretion in AECs, and reduced AT2 viability, due to increased senescence and apoptosis, which was abrogated by CSP7. In addition, treatment of wild-type mice having CS-LI with CSP7 by intraperitoneal injection or nebulization via airways attenuated mucus hypersecretion, alveolar injury, and significantly improved lung function. This study validates the potential therapeutic role of CSP7 for treating CS-LI and COPD. NEW & NOTEWORTHY Chronic cigarette smoke (CS) exposure remains a major risk factor for the pathogenesis of COPD, a debilitating disease with no effective treatment. Increased caveolin-1 mediated induction of p53 and downstream plasminogen activator inhibitor-1 (PAI-1) expression contributes to CS-induced airway mucus hypersecretion and alveolar wall damage. This is reversed by caveolin-1 scaffolding domain peptide (CSP7) in preclinical models, suggesting the therapeutic potential of CSP7 for treating CS-induced lung injury (CS-LI) and COPD.