The Community Earth System Model version 2 (CESM2) simulates a high equilibrium climate sensitivity (ECS > 5 degC) and a Last Glacial Maximum (LGM) that is substantially colder than proxy temperatures. In this study, we use the LGM global temperature from geological proxies as a benchmark to examine the role of cloud parameterizations in simulating the LGM cooling in CESM2. Through substituting different versions of cloud schemes in the atmosphere model, we attribute the excessive LGM cooling to the new schemes of cloud microphysics and ice nucleation. Further exploration suggests that removing an inappropriate limiter on cloud ice number (NoNimax) and decreasing the time-step size (substepping) in cloud microphysics largely eliminate the excessive LGM cooling. NoNimax produces a more physically consistent treatment of mixed-phase clouds, which leads to more cloud ice content and a weaker shortwave cloud feedback over mid-to-high latitudes and the Southern Hemisphere subtropics. Microphysical substepping further weakens the shortwave cloud feedback. Based on NoNimax and microphysical substepping, we have developed a paleoclimate-calibrated CESM2 (PaleoCalibr), which simulates well the observed 20th century warming and spatial characteristics of key cloud and climate variables. PaleoCalibr has a lower ECS (~4 degC) and a 20% weaker aerosol-cloud interaction than CESM2. PaleoCalibr represents a physically and numerically better treatment of cloud microphysics and, we believe, is a more appropriate tool than CESM2 in climate change studies, especially when a large climate forcing is involved. Our study highlights the unique value of paleoclimate constraints in informing the cloud parameterizations and ultimately the future climate projection.