The signals that regulate stem cell self-renewal and differentiation in the lung remain elusive. Lung stem cells undergo self-renewal or lineage commitment to replenish tissue, depending on cross-talk with their environment. This environment, also known as the niche, includes mesenchymal and endothelial tissues. Here we define molecular mechanisms involved in the interaction between human lung Lgr6+ stem cells (LSCs) and fibroblasts in a functional microenvironment. We reveal a central role for p38α MAPK in establishing and maintaining such cross-talk, acting in both cell types. In LSCs, p38α induces the expression of SDF-1, which activates the stroma. p38α is essential for fibroblast activation and induction of cytokine expression, in particular TNFα. This paracrine network induces a hierarchical activation leading to the recruitment of endothelium, establishing a functional microenvironment. Disruption of this cross-talk abrogates proper LSC differentiation in vivo and may lead to lung dysfunction and disease.