UFMylation, a recently identified ubiquitin-like modification mediated by the E3 ligase UFL1, plays context-specific roles in cancers, but its substrates and functions in lung adenocarcinoma (LUAD) remain poorly defined. Here, we identify the AKT signaling repressor PHLDA3 as a substrate of UFL1 in LUAD. UFMylation of PHLDA3 at Lys51 and Lys106 promotes its membrane localization, thereby blocking AKT membrane recruitment and suppressing downstream signaling. Tumor-associated PHLDA3 mutations F41L, E82G and K106N impair its UFMylation and membrane translocation, resulting in AKT hyperactivation and enhanced tumor growth. In samples from patients with LUAD, UFL1 expression inversely correlates with phosphor-AKT levels. Functionally, the UFL1-PHLDA3 axis inhibits LUAD progression in both cell line-based and patient-derived xenograft models. These findings define a tumor-suppressive UFMylation pathway that modulates AKT activity and provides a mechanistic rationale for targeting UFL1-PHLDA3 signaling in LUAD.