The derivation of tissue-specific stem cells from human induced pluripotent stem cells (iPSCs) would have broad reaching implications for regenerative medicine. Here, we report the directed differentiation of human iPSCs into airway basal cells (“iBCs”), a population resembling the stem cell of the airway epithelium. Using a dual fluorescent reporter system (NKX2-1GFP;TP63tdTomato), we track and purify these cells as they first emerge as developmentally immature NKX2-1GFP+ lung progenitors and subsequently augment a TP63 program during proximal airway epithelial patterning. In response to primary basal cell medium, NKX2-1GFP+/TP63tdTomato+ cells display the molecular and functional phenotype of airway basal cells, including the capacity to self-renew or undergo multi-lineage differentiation in vitro and in tracheal xenografts in vivo. iBCs and their differentiated progeny model perturbations that characterize acquired and genetic airway diseases, including the mucus metaplasia of asthma, chloride channel dysfunction of cystic fibrosis, and ciliary defects of primary ciliary dyskinesia. Display omitted •Directed differentiation of human iPSCs generates airway basal cells (“iBCs”)•iBCs self-renew and display multipotent differentiation in vitro and in vivo•By single-cell RNA-seq, iBCs are highly similar to adult primary airway basal cells•iBCs enable modeling of acquired and genetic airway diseases Hawkins and colleagues report a directed differentiation protocol enabling the derivation of airway basal cells (“iBCs”) from human iPSCs. iBCs recapitulate hallmark stem cell properties of primary basal cells, including self-renewal and multi-lineage differentiation, thus enabling modeling of airway diseases in vitro and repopulation of tracheal xenografts in vivo.