Telomere maintenance dysfunction has been implicated in the pathogenesis of Idiopathic Pulmonary Fibrosis (IPF). However, the mechanism of how telomere length is related to fibrosis in the lungs is unknown. Surgical lung biopsies of IPF patients typically show a heterogeneous pattern of non-fibrotic and fibrotic areas. Therefore, telomere length (TL) in both lung areas of patients with IPF and familial interstitial pneumonia was compared, specifically in alveolar type 2 (AT2) cells. Fluorescent in situ hybridization was used to determine TL in non-fibrotic and fibrotic areas of 35 subjects. Monochrome multiplex quantitative polymerase chain reaction (MMqPCR) was used for 51 whole lung biopsies and blood TL measurements. For sporadic IPF subjects, AT2 cell TL in non-fibrotic areas was 56% longer than in fibrotic areas. No such difference was observed in the surrounding lung cells. In subjects carrying a telomerase reverse transcriptase (TERT) mutation, AT2 cell TL was significantly shorter than in sporadic subjects. However, no difference in surrounding cell TL was observed between these subject groups. Finally, using biopsy MMqPCR TL measurements, it was determined that IPF subjects with shortest lung TL had a significantly worse survival than patients with long TL. This study shows that shortening of telomeres critically affects AT2 cells in fibrotic areas, implying TL as a cause of fibrogenesis. Furthermore, short lung telomere length is associated with decreased survival.