Macrophages are critical to organ structure and function in health and disease. To determine mechanisms by which granulocyte/macrophage-colony stimulating factor (GM-CSF) signaling normally maintains surfactant homeostasis and how its disruption causes pulmonary alveolar proteinosis (PAP), we evaluated lipid composition in alveolar macrophages and lung surfactant, macrophage-mediated surfactant clearance kinetics/dynamics, and cholesterol-targeted pharmacotherapy of PAP in vitro and in vivo. Without GM-CSF signaling, surfactant-exposed macrophages massively accumulated cholesterol ester-rich lipid-droplets and surfactant had an increased proportion of cholesterol. GM-CSF regulated cholesterol clearance in macrophages in constitutive, dose-dependent, and reversible fashion but did not affect phospholipid clearance. PPARγ-agonist therapy increased cholesterol clearance in macrophages and reduced disease severity in PAP mice. Results demonstrate that GM-CSF is required for cholesterol clearance in macrophages, identify reduced cholesterol clearance as the primary macrophage defect driving PAP pathogenesis, and support the feasibility of translating pioglitazone as a novel pharmacotherapy of PAP.