Lung transplantation (LTx) offers life-saving therapy for end-stage lung disease, yet primary graft dysfunction (PGD) and bronchiolitis obliterans syndrome remain major complications, which limit long-term outcomes. The risk of PGD increases with prolonged storage and reperfusion injury. This study investigated the protective effects of cystatin C (CysC), a cysteine protease inhibitor, against PGD, through neutralization of cathepsin B activity. LTx recipients exhibited reduced levels of CysC and greater lung damage reflected by increased γ-H2AX and ACSL4 expression, correlating with poorer outcome. Using an orthotopic LTx model, we engineered CysC-Alb, an albumin-fused, cell-permeable CysC derivative for enhanced lung preservation. Adding CysC-Alb to preservation solutions during cold storage and ex vivo lung perfusion improved oxygenation, reduced DNA damage, and minimized cell death, particularly in alveolar type 2 cells. In murine grafts, CysC-Alb decreased γ-H2AX and ACSL4 expression, markers of DNA damage and ferroptosis, respectively. These findings highlight CysC-Alb as an effective additive to mitigate early pulmonary dysfunction after LTx and improve lung graft viability and transplantation outcomes.