The discovery of a gene network regulating lysosomal biogenesis and its transcriptional regulator transcription factor EB (TFEB) revealed that cells monitor lysosomal function and respond to degradation requirements and environmental cues. We report the identification of transcription factor E3 (TFE3) as another regulator of lysosomal homeostasis that induced expression of genes encoding proteins involved in autophagy and lysosomal biogenesis in ARPE-19 cells in response to starvation and lysosomal stress. We found that in nutrient-replete cells, TFE3 was recruited to lysosomes through interaction with active Rag guanosine triphosphatases (GTPases) and exhibited mammalian (or mechanistic) target of rapamycin complex 1 (mTORC1)-dependent phosphorylation. Phosphorylated TFE3 was retained in the cytosol through its interaction with the cytosolic chaperone 14-3-3. After starvation, TFE3 rapidly translocated to the nucleus and bound to the CLEAR elements present in the promoter region of many lysosomal genes, thereby inducing lysosomal biogenesis. Depletion of endogenous TFE3 entirely abolished the response of ARPE-19 cells to starvation, suggesting that TFE3 plays a critical role in nutrient sensing and regulation of energy metabolism. Furthermore, overexpression of TFE3 triggered lysosomal exocytosis and resulted in efficient cellular clearance in a cellular model of a lysosomal storage disorder, Pompe disease, thus identifying TFE3 as a potential therapeutic target for the treatment of lysosomal disorders.