During lung development, Fibroblast growth factor 10 (Fgf10), which is expressed in the distal mesenchyme and regulated by Wnt signaling, acts on the distal epithelial progenitors to maintain them and prevent them from differentiating into proximal (airway) epithelial cells. Fgf10-expressing cells in the distal mesenchyme are progenitors for parabronchial smooth muscle cells (PSMCs). After naphthalene, ozone or bleomycin-induced airway epithelial injury, surviving epithelial cells secrete Wnt7b which then activates the PSMC niche to induce Fgf10 expression. This Fgf10 secreted by the niche then acts on a subset of Clara stem cells to break quiescence, induce proliferation and initiate epithelial repair. Here we show that conditional deletion of the Wnt target gene c-Myc from the lung mesenchyme during development does not affect proper epithelial or mesenchymal differentiation. However, in the adult lung we show that after naphthalene-mediated airway epithelial injury c-Myc is important for the activation of the PSMC niche and as such induces proliferation and Fgf10 expression in PSMCs. Our data indicate that conditional deletion of c-Myc from PSMCs inhibits airway epithelial repair, whereas c-Myc ablation from Clara cells has no effect on airway epithelial regeneration. These findings may have important implications for understanding the misregulation of lung repair in asthma and COPD.