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© 2018, The Author(s). Mesenchymal tumor subpopulations secrete pro-tumorigenic cytokines and promote treatment resistance 1–4 . This phenomenon has been implicated in chemorefractory small cell lung cancer and resistance to targeted therapies 5–8 , but remains incompletely defined. Here, we identify a subclass of endogenous retroviruses (ERVs) that engages innate immune signaling in these cells. Stimulated 3 prime antisense retroviral coding sequences (SPARCS) are oriented inversely in 3′ untranslated regions of specific genes enriched for regulation by STAT1 and EZH2. Derepression of these loci results in double-stranded RNA generation following IFN-γ exposure due to bi-directional transcription from the STAT1-activated gene promoter and the 5′ long terminal repeat of the antisense ERV. Engagement of MAVS and STING activates downstream TBK1, IRF3, and STAT1 signaling, sustaining a positive feedback loop. SPARCS induction in human tumors is tightly associated with major histocompatibility complex class 1 expression, mesenchymal markers, and downregulation of chromatin modifying enzymes, including EZH2. Analysis of cell lines with high inducible SPARCS expression reveals strong association with an AXL/MET-positive mesenchymal cell state. While SPARCS-high tumors are immune infiltrated, they also exhibit multiple features of an immune-suppressed microenviroment. Together, these data unveil a subclass of ERVs whose derepression triggers pathologic innate immune signaling in cancer, with important implications for cancer immunotherapy.