DNA damage and consequent mutations initiate the multistep carcinogenic process. Differentiated cells have a reduced capacity to repair DNA lesions, but the biological impact of unrepaired DNA lesions in differentiated lung epithelial cells is unclear. Here, we used a novel organotypic human lung three-dimensional (3D) model to investigate the biological significance of unrepaired DNA lesions in differentiated lung epithelial cells. We showed, consistent with existing notions that the kinetics of loss of simple double-strand breaks (DSBs) were significantly reduced in organotypic 3D culture compared to kinetics of repair in two-dimensional (2D) culture. Strikingly, we found that, unlike simple DSBs, a majority of complex DNA lesions were irreparable in organotypic 3D culture. Levels of expression of multiple DNA damage repair pathway genes were significantly reduced in the organotypic 3D culture compared with those in 2D culture providing molecular evidence for the defective DNA damage repair in organotypic culture. Further, when differentiated cells with unrepaired DNA lesions re-entered the cell cycle, they manifested a spectrum of gross-chromosomal aberrations in mitosis. Our data suggest that downregulation of multiple DNA repair pathway genes in differentiated cells renders them vulnerable to DSBs, promoting genome instability that may lead to carcinogenesis.