The luminal airway surface is lined with epithelial cells that provide a protective barrier from the external environment and clear inhaled pathogens from the lung. In order to accomplish this important function, human bronchial epithelial (HBE) cells must be able to rapidly regenerate a mucociliary layer of cells following epithelial injury. While epithelial-fibroblast interactions are known to modulate the airway architecture during lung development and repair, little is known about how these two cells interact. Using a primary HBE and lung fibroblast co-culture system we demonstrate that (i) sub-epithelial fibroblasts provide a suitable environment for differentiation of HBE cells into a polarized ciliated phenotype, despite being cultured in media that induces terminal squamous differentiation and growth arrest in the absence of fibroblasts, (ii) HBE cells co-cultured with sub-epithelial fibroblasts exhibit augmented ciliagenesis, accelerated wound repair, and diminished polarized ion transport compared to cells grown in control conditions, and (iii) hepatocyte growth factor (HGF) is important for sub-epithelial fibroblast modulation of HBE cell differentiation. These results provide a model to study fibroblast modulation of epithelial phenotype, and indicate that HGF secreted by sub-epithelial fibroblasts contributes to HBE cell differentiation.