Purpose: This study presents the first in vivo real-time tissue characterization during image-guided percutaneous lung biopsies using diffuse reflectance spectroscopy (DRS) sensing at the tip of a biopsy needle with integrated optical fibers. Experimental Design: Tissues from 21 consented patients undergoing lung cancer surgery were measured intraoperatively using the fiber-optic platform capable of assessing various physical tissue properties highly correlated to tissue architecture and composition. Additionally, the method was tested for clinical use by performing DRS tissue sensing during 11 routine biopsy procedures in patients with suspected lung cancer. Results: We found that water content and scattering amplitude are the primary discriminators for the transition from healthy lung tissue to tumor tissue and that the reliability of these parameters is not affected by the amount of blood at the needle tip. In the 21 patients measured intraoperatively, the water-to-scattering ratio yielded a 56% to 81% contrast difference between tumor and surrounding tissue. Analysis of the 11 image-guided lung biopsy procedures showed that the tissue diagnosis derived from DRS was diagnostically discriminant in each clinical case. Conclusions: DRS tissue sensing integrated into a biopsy needle may be a powerful new tool for biopsy guidance that can be readily used in routine diagnostic lung biopsy procedures. This approach may not only help to increase the successful biopsy yield for histopathological analysis, but may also allow specific sampling of vital tumor tissue for genetic profiling.