KRAS/ERK pathway phosphorylates DICER1, causing its nuclear translocation, and phosphomimetic Dicer1 contributes to tumorigenesis in mice. Mechanisms through which phospho-DICER1 regulates tumor progression remain undefined. While DICER1 canonically regulates microRNAs (miRNA) and epithelial-to-mesenchymal transition (EMT), we found that phosphorylated nuclear DICER1 (phospho-nuclear DICER1) promotes late-stage tumor progression in mice with oncogenic Kras, independent of miRNAs and EMT. Instead, we observe that the murine AT2 tumor cells exhibit altered chromatin compaction, and cells from disorganized advanced tumors, but not localized tumors, express gastric genes. Collectively, this results in subpopulations of tumor cells transitioning from a restricted alveolar to a broader endodermal lineage state. In human LUADs, we observed expression of phospho-nuclear DICER1 in advanced tumors together with the expression of gastric genes. We define a multimeric chromatin-DICER1 complex composed of the Mediator complex subunit 12, CBX1, MACROH2A.1, and transcriptional regulators supporting the model that phospho-nuclear DICER1 leads to lineage reprogramming of AT2 tumor cells to mediate lung cancer progression.