The endolysosomal system sustains the reabsorptive activity of specialized epithelial cells. Lysosomal storage diseases such as nephropathic cystinosis cause a major dysfunction of epithelial cells lining the kidney tubule, resulting in massive losses of vital solutes in the urine. The mechanisms linking lysosomal defects and epithelial dysfunction remain unknown, preventing the development of disease-modifying therapies. Here we demonstrate, by combining genetic and pharmacologic approaches, that lysosomal dysfunction in cystinosis results in defective autophagy-mediated clearance of damaged mitochondria. This promotes the generation of oxidative stress that stimulates Gα12/Src-mediated phosphorylation of tight junction ZO-1 and triggers a signaling cascade involving ZO-1-associated Y-box factor ZONAB, which leads to cell proliferation and transport defects. Correction of the primary lysosomal defect, neutralization of mitochondrial oxidative stress, and blockage of tight junction-associated ZONAB signaling rescue the epithelial function. We suggest a link between defective lysosome-autophagy degradation pathways and epithelial dysfunction, providing new therapeutic perspectives for lysosomal storage disorders.