Background: Oncocytes of the thyroid gland (Hürthle cells) are found in tumors and autoimmune diseases. They have a unique appearance characterized by abundant granular eosinophilic cytoplasm and hyperchromatic nucleus. Their pathogenesis has remained, thus far, unknown. Methodology/Principal Findings: Using transgenic mice chronically expressing IFNγ in thyroid gland, we showed changes in the thyroid follicular epithelium reminiscent of the human oncocyte. Transcriptome analysis comparing transgenic to wild type thyrocytes revealed increased levels of immunoproteasome subunits like LMP2 in transgenics, suggesting an important role of the immunoproteasome in oncocyte pathogenesis. Pharmacologic blockade of the proteasome, in fact, ameliorated the oncocytic phenotype. Genetic deletion of LMP2 subunit prevented the development of the oncocytic phenotype and primary hypothyroidism. LMP2 was also found expressed in oncocytes from patients with Hashimoto thyroiditis and Hürthle cell tumors. Conclusions/Significance: In summary, we report that oncocytes are the result of an increased immunoproteasome expression secondary to a chronic inflammatory milieu, and suggest LMP2 as a novel therapeutic target for the treatment of oncocytic lesions and autoimmune hypothyroidism.