It has been suggested that some adult bone marrow cells (BMC) can localize to the lung and develop tissue-specific characteristics including those of pulmonary epithelial cells. Here, we show that the combination of mild airway injury (naphthalene-induced) as a conditioning regimen to direct the site of BMC localization and transtracheal delivery of short-term cultured BMC enhances airway localization and adoption of an epithelial-like phenotype. Confocal analysis of airway and alveolar-localized BMC (fluorescently-labeled) with epithelial markers show expression of the pulmonary epithelial proteins, Clara cell secretory protein and surfactant protein-C. To confirm epithelial gene expression by BMC, we generated transgenic mice expressing green fluorescent protein (GFP) driven by the epithelial-specific cytokeratin-18 promoter and injected BMC from these mice transtracheally into wild-type recipient after naphthalene-induced airway injury. BMC retention in the lung was observed to at least 120 days following cell delivery with increasing GFP transgene expression over time. Some BMC cultured in vitro over time also expressed GFP transgene suggesting epithelial transdifferentiation of the BMC. The results indicate that targeted delivery of BMC can promote airway regeneration.