Idiopathic pulmonary fibrosis (IPF) is a chronic, progressive disease resulting from alveolar epithelial cell injury. Senescence and dysfunction of alveolar epithelial type II (AT2) cells are key drivers of IPF pathogenesis. Given that metabolism underpins cellular homeostasis and AT2 cell function critically depends on lipid metabolism, we investigated the role of fatty acid binding protein 5 (FABP5), a key regulator of intracellular fatty acid trafficking. Using single-cell RNA-sequencing data, we assessed FABP5 expression across primary cellular subpopulations of IPF lung tissue, and validated its expression in IPF patient lungs and bleomycin-induced pulmonary fibrosis (PF) models by western blotting, quantitative PCR and immunofluorescence. We generated FABP5-overexpressing cell lines and human lung precision-cut lung slices (PCLS) via lentiviral transduction, and examined the effects of FABP5 on cell proliferation, apoptosis, mitochondrial function, and lipid droplet formation using staining-based assays. To evaluate in vivo effects, we overexpressed FABP5 in mouse lung tissue via adeno-associated virus (AAV) delivery and evaluated fibrosis by micro-CT and histopathological staining. We found that FABP5 expression was significantly downregulated in AT2 cells from IPF patients and bleomycin-induced models. Overexpression of FABP5 attenuated pathological fibroblast activation and enhanced mitochondrial bioenergetics, thereby protecting alveolar epithelial cells from injury. Furthermore, FABP5 mitigated bleomycin-induced lung fibrosis by increasing global lipid and medium/long-chain fatty acid levels. Our findings identify FABP5 as a critical regulator of pulmonary fibrosis. Downregulation of FABP5 in AT2 cells contributes to disease progression, whereas restoration of FABP5 expression attenuates fibrogenesis by suppressing pathological fibroblast activation, preserving mitochondrial function in AT2 cells, and restoring lipid homeostasis through elevation of medium- and long- chain fatty acids. These results nominate FABP5 as a promising therapeutic target for this devastating disease.