Adult stem cells play a crucial role in tissue homeostasis and repair through multiple mechanisms. In addition to being able to replace aged or damaged cells, stem cells provide signals that contribute to the maintenance and function of neighboring cells. In the lung, airway basal stem cells also produce cytokines and chemokines in response to inhaled irritants, allergens, and pathogens, which affect specific immune cell populations and shape the nature of the immune response. However, direct cell-to-cell signaling through contact between airway basal stem cells and immune cells has not been demonstrated. Recently, a unique population of intraepithelial airway macrophages (IAMs) has been identified in the murine trachea. Here, we demonstrate that IAMs require Notch signaling from airway basal stem cells for maintenance of their differentiated state and function. Furthermore, we demonstrate that Notch signaling between airway basal stem cells and IAMs is required for antigen-induced allergic inflammation only in the trachea where the basal stem cells are located whereas allergic responses in distal lung tissues are preserved consistent with a local circuit linking stem cells to proximate immune cells. Finally, we demonstrate that IAM-like cells are present in human conducting airways and that these cells display Notch activation, mirroring their murine counterparts. Since diverse lung stem cells have recently been identified and localized to specific anatomic niches along the proximodistal axis of the respiratory tree, we hypothesize that the direct functional coupling of local stem cell-mediated regeneration and immune responses permits a compartmentalized inflammatory response.