Cigarette smoking is the primary cause of Chronic Obstructive Pulmonary Disease (COPD), which is characterized by chronic inflammation of the airways and destruction of lung parenchyma. Repeated and sustained bacterial infections are clearly linked to disease pathogenesis (e.g., exacerbations) and a huge burden on health care costs. The airway epithelium constitutes the first line of host defense against infection and our previous study indicated that Fatty Acid Binding Protein 5 (FABP5) is down regulated in airway epithelial cells of smokers with COPD as compared to smokers without COPD. We hypothesized that cigarette smoke (CS) exposure down regulates FABP5, thus, contributing to a more sustained inflammation in response to bacterial infection. In this report, we show that FABP5 is increased following bacterial infection but decreased following CS exposure of primary normal human bronchial epithelial (NHBE) cells. The goal of this study was to address FABP5 function by knocking down or overexpressing FABP5 in primary NHBE cells exposed to CS. Our data indicate that FABP5 down regulation results in increased P. aeruginosa bacterial load and inflammatory cytokine levels (e.g., IL-8) and decreased expression of the anti-bacterial peptide, β defensin-2. On the contrary, FABP5 overexpression exerts a protective function in airway epithelial cells against P. aeruginosa infection by limiting the production of IL-8 and increasing the expression of β defensin-2. Our study indicates that FABP5 exerts immunomodulatory functions in the airway epithelium against CS exposure and subsequent bacterial infection through its modulation of the nuclear receptor peroxisome proliferator-activated receptor (PPAR)-γ activity. These findings support the development of FABP5/PPAR-γ-targeted therapeutic approach to prevent airway inflammation by restoring antimicrobial immunity during COPD exacerbations.