Recipient airway epithelial cells are found in human sex-mismatched lung transplants, implying that circulating progenitor epithelial cells contribute to the repair of the airway epithelium. Markers of circulating progenitor epithelial cells and mechanisms for their trafficking remain to be elucidated. We demonstrate that a population of progenitor epithelial cells exists in the bone marrow and the circulation of mice that is positive for the early epithelial marker cytokeratin 5 (CK5) and the chemokine receptor CXCR4. We used a mouse model of sex-mismatched tracheal transplantation and found that CK5+ circulating progenitor epithelial cells contribute to re-epithelialization of the airway and re-establishment of the pseudostratified epithelium. The presence of CXCL12 in tracheal transplants provided a mechanism for CXCR4+ circulating progenitor epithelial cell recruitment to the airway. Depletion of CXCL12 resulted in the epithelium defaulting to squamous metaplasia, which was derived solely from the resident tissue progenitor epithelial cells. Our findings demonstrate that CK5+CXCR4+ cells are markers of circulating progenitor epithelial cells in the bone marrow and circulation and that CXCR4/CXCL12-mediated recruitment of circulating progenitor epithelial cells is necessary for the re-establishment of a normal pseudostratified epithelium after airway injury. These findings support a novel paradigm for the development of squamous metaplasia of the airway epithelium and for developing therapeutic strategies for circulating progenitor epithelial cells in airway diseases.