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The conducting airway epithelium is maintained and repaired by endogenous progenitor cells. Dysregulated progenitor cell proliferation and differentiation is thought to contribute to epithelial dysplasia in chronic lung disease. Thus modification of progenitor cell function is an attractive therapeutic goal and one that would be facilitated by knowledge of the molecular pathways that regulate their behavior. We modeled the human tracheobronchial epithelium using primary mouse tracheal epithelial cell cultures that were differentiated by exposure to the air-liquid-interface (ALI). A basal cell subset, termed facultative basal cell progenitors (FBP), initiate these cultures and are the progenitor for tracheal-specific secretory cells, the Clara-like cell, and ciliated cells. To test the hypothesis that β-catenin is necessary for FBP function, ALI cultures were generated from mice homozygous for the Ctnb(flox(E2-6)) allele. In this model, exons 2-6 of the β-catenin gene are flanked by LoxP sites, allowing conditional knockout of β-catenin. The β-catenin locus was modified through transduction with Adenovirus-5-encoding Cre recombinase. This approach generated a mosaic epithelium, comprised of β-catenin wild-type and β-catenin knockout cells. Dual immunostaining and quantitative histomorphometric analyses demonstrated that β-catenin played a direct role in FBP-to-ciliated cell differentiation and that it regulated cell-cell interactions that were necessary for FBP-to-Clara-like cell differentiation. β-catenin was also necessary for FBP proliferation and long-term FBP viability. We conclude that β-catenin is a critical determinant of FBP function and suggest that dysregulation of the β-catenin signaling pathway may contribute to disease pathology.