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Lung resident neutrophils need to be tightly regulated to avoid degranulation- and cytokine-associated damage to fragile alveolar structures that can lead to fatal outcomes. Here we show that lung neutrophils (LNs) express distinct surface proteins and genes that definitely distinguish LNs from bone marrow and blood neutrophils. Functionally, LNs show impaired migratory activity toward chemoattractants and produce high levels of IL-6 at steady state and low levels of TNF-α in response to LPS challenge. Treating bone marrow neutrophils with bronchoalveolar lavage fluid or prostaglandin E2induces LN-associated characteristics including the expression of transglutaminase 2 (Tgm2)and reduced production of inflammatory cytokines upon LPS challenge. Neutrophils from Tgm2-/-mice release high levels of inflammatory cytokines in response to LPS. Lung damage is significantly exacerbated in Tgm2-/-mice in an LPS-induced acute respiratory distress syndrome model. Collectively, we demonstrate that prostaglandin E2is a key factor for the generation of LNs with unique immune suppressive characteristics, acting through protein kinase A and Tgm2, and LNs play essential roles in the protection of the lungs against pathogenic inflammation.