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 (NKX2-1^GFP;TP63^tdTomato), we track and purify these cells as they first emerge as developmentally immature NKX2-1^GFP+ lung progenitors and subsequently augment a TP63 program during proximal airway epithelial patterning. In response to primary basal cell medium, NKX2-1^GFP+/TP63^tdTomato+ 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.