Abstract Background LncRNAs are key regulators in cancer. The current study explored the role of lncRNA LINC00261 (LINC00261) in lung cancer (LC). Methods Expression of LINC00261 in LC tissues and cells was determined by quantitative real-time polymerase chain reaction (qRT-PCR). Pearson’s Chi square test and Kaplan–Meier analysis were performed to evaluate the correlations between LINC00261 expression and clinical characteristics, and overall survival time. A549 and SPC-A1 cells were transfected with LINC00261 overexpression plasmid, cell viability, cell number, and apoptosis were detected by CCK-8 assay, colony formation, and flow cytometry. Moreover, wound-healing and transwell assay were performed to detect cell metastasis and invasion. Expressions of proteins related to cell proliferation and metastasis were determined by Western blot. Xenograft was constructed, and tumor size and weight were measured and the effects of LINC00261 overexpression on tumor growth were detected. Bioinformatics analysis, dual-luciferase reporter assay, qRT-PCR, correlation analysis, and functional rescue experiments were conducted on clinical cases and LC cells to explore the molecular mechanism of LINC00261 in LC. Results In LC, LINC00261 expression was down-regulated, and was associated with more advanced TNM stage, metastasis and a shorter survival time. LINC00261 overexpression inhibited the growth and metastasis of LC cells in vitro and tumor growth in vivo. Furthermore, miR-1269a directly interacted with LINC00261 and FOXO1. The expressions of miR-1269a and FOXO1 were dysregulated by LINC00261 in LC. Additionally, miR-1269a promoted the progression of LC through targeting FOXO1. Conclusions Down-regulation of LINC00261 expression has a prognostic value in LC, and overexpression LINC00261 inhibits LC progression via targeting miR-1269a/FOXO1 axis.