Sensing and clearance of dysfunctional lysosomes is critical for cellular homeostasis. Here we show that transcription factor EB (TFEB)-a master transcriptional regulator of lysosomal biogenesis and autophagy-is activated during the lysosomal damage response, and its activation is dependent on the function of the ATG conjugation system, which mediates LC3 lipidation. In addition, lysosomal damage triggers LC3 recruitment on lysosomes, where lipidated LC3 interacts with the lysosomal calcium channel TRPML1, facilitating calcium efflux essential for TFEB activation. Furthermore, we demonstrate the presence and importance of this TFEB activation mechanism in kidneys in a mouse model of oxalate nephropathy accompanying lysosomal damage. A proximal tubule-specific TFEB-knockout mouse exhibited progression of kidney injury induced by oxalate crystals. Together, our results reveal unexpected mechanisms of TFEB activation by LC3 lipidation and their physiological relevance during the lysosomal damage response.