Chronic obstructive pulmonary disease (COPD) and lung cancer are two diseases that are related to smoking in humans. The molecular mechanism linking these two diseases is poorly understood. Matrix metalloproteinase 12 (MMP12) is a member of the MMP family, which can be induced by smoking. Because MMP12 overexpression in epithelial cells has been reported in inflammation-triggered lung remodeling, a murine CCSP-rtTA/(tetO)(7)-MMP12 bitransgenic model was created. In this model, MMP12-Flag fusion protein overexpression and its increased enzymatic activity were observed in the lung in an inducible manner, which led to inflammatory cell infiltration and increased epithelial growth. In sequential events, spontaneous emphysema and bronchioalveolar adenocarcinoma were developed as a result of MMP12 overexpression. During this process, the concentration of interleukin-6 was steadily increased in bronchioalveolar lavage fluid, which activated the oncogenic signal transducer and activator of transcription 3 (Stat3) in alveolar type II epithelial cells. Expression of Stat3 downstream genes that are known to stimulate inflammation and tumor formation was significantly increased in the lung. When tested in humans, MMP12 up-regulation was highly associated with COPD and lung cancer in patients. Together, these studies support that MMP12 is a potent proinflammatory and oncogenic molecule. MMP12 up-regulation plays a critical role in emphysema to lung cancer transition that is facilitated by inflammation.