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Epithelial injury has been proposed to be the initiating factor in the pathogenesis of idiopathic pulmonary fibrosis (IPF). We have shown previously that heparan sulfate 6-O-endosulfatase (Sulf) 2 is overexpressed in the hyperplastic type II alveolar epithelial cells (AECs) in the IPF lungs. By removing 6-O-sulfates from specific heparan sulfate intrachain sites, Sulf2 modulates the functions of many growth factors and cytokines. In this study, we hypothesized that Sulf2 plays a regulatory role in alveolar epithelial injury and repair, using the murine bleomycin model. Consistent with our findings in human IPF lungs, bleomycin treatment in mice resulted in up-regulation of Sulf2 mRNA in whole-lung extracts and overexpression of Sulf2 protein in type II AECs on lung tissue sections. Sulf2 protein was detectable in bronchoalveolar lavage fluid at baseline, and its level was significantly increased after bleomycin exposure. To study the role of Sulf2 in alveolar injury and repair in vivo, we generated a doxycycline-inducible epithelial-specific Sulf2 conditional knockout (Sulf2 CKO) mouse line. After bleomycin exposure, Sulf2 CKO mice exhibited enhanced neutrophil infiltration in the lung, with elevated levels of total protein, lactate dehydrogenase, and cytokines (granulocyte colony-stimulating factor and interferon-γ-inducible protein 10) in bronchoalveolar lavage fluid compared with wild-type littermates. We further showed that both the p53-p21 DNA damage response and the transforming growth factor-β1 signaling pathway were up-regulated in Sulf2 CKO mice compared with wild-type. Finally, Sulf2 CKO mice suffered increased mortality after bleomycin exposure. In conclusion, Sulf2 expression in type II AECs plays a protective role in epithelial injury, inflammation and mortality.