Macrophage accumulation and inflammation in the lung owing to stresses and diseases is a cause of lung cancer development. However, molecular mechanisms underlying the interaction between macrophages and cancer cells, which drive inflammation and stemness in cancers, are poorly understood. In this study, we investigated the expression of ubiquitin-specific peptidase 17 (USP17) in lung cancers, and role of elevated USP17 in the interaction between macrophages and lung cancer cells. USP17 expression in lung cancers was associated with poor prognosis, macrophage, and inflammatory marker expressions. Macrophages promoted USP17 expression in cancer cells. TNFR-associated factor (TRAF) 2-binding and TRAF3-binding motifs were identified in USP17, through which it interacted with and disrupted the TRAF2/TRAF3 complex. This stabilized its client proteins, enhanced inflammation and stemness in cancer cells, and promoted macrophage recruitment. In different animal studies, co-injection of macrophages with cancer cells promoted USP17 expression in tumors and tumor growth. Conversely, depletion of macrophages in host animals by clodronate liposomes reduced USP17 expression and tumor growth. In addition, overexpression of USP17 in cancer cells promoted tumor growth and inflammation-associated and stemness-associated gene expressions in tumors. These results suggested that USP17 drives a positive-feedback interaction between macrophages and cancer cells to enhance inflammation and stemness in cancer cells, and promotes lung cancer growth.