In this study, we generated induced pluripotent stem cells (iPSC) from normal human small airway epithelial cells (SAEC) to investigate epigenetic mechanisms of stemness and pluripotency in lung cancers. We documented key hallmarks of reprogramming in lung iPSCs (Lu-iPSC) that coincided with modulation of more than 15,000 genes relative to parental SAECs. Of particular novelty, we identified the PRC2-associated protein, ASXL3, which was markedly upregulated in Lu-iPSCs and small cell lung cancer (SCLC) lines and clinical specimens. ASXL3 overexpression correlated with increased genomic copy number in SCLC lines. ASXL3 silencing inhibited proliferation, clonogenicity, and teratoma formation by Lu-iPSCs, and diminished clonogenicity and malignant growth of SCLC cells in vivo. Collectively, our studies validate the utility of the Lu-iPSC model for elucidating epigenetic mechanisms contributing to pulmonary carcinogenesis and highlight ASXL3 as a novel candidate target for SCLC therapy. Cancer Res; 77(22); 6267–81. ©2017 AACR.