The use of lung progenitors for regenerative medicine appears promising, but their biology is not fully understood. Here, we found anti-inflammatory attributes in bronchiolar progenitors that were sorted as a multipotent subset of mouse club cells and found to express secretory leukocyte protease inhibitor (SLPI). Notably, the impaired expression of SLPI in mice increased the number of bronchiolar progenitors and decreased the lung inflammation. We determined a transcriptional profile for the bronchiolar progenitors of Slpi-deficient mice and identified syndecan 4, whose expression was markedly elevated as compared to that of wild-type mice. Systemic administration of recombinant syndecan 4 protein caused a substantial increase in the number of bronchiolar progenitors with concomitant attenuation of both airway and alveolar inflammation. The syndecan 4 administration also resulted in activation of the Keap1-Nrf2 antioxidant pathway in lung cells, which is critically involved in the therapeutic responses to the syndecan 4 treatment. Moreover, in 3D culture, the presence of syndecan 4 induced differentiated club cells to undergo Nrf2-dependent transition into bronchiolar progenitors. Our observations reveal that differentiative switches between bronchiolar progenitors and club cells are under the Nrf2-mediated control of SLPI and syndecan 4, suggesting the possibility of new therapeutic approaches in inflammatory lung diseases.