Epithelial cells orchestrate pulmonary homeostasis and pathogen defense and play a crucial role in the initiation of allergic immune responses. Maintaining the balance between homeostasis and inappropriate immune activation and associated pathology is particularly complex at mucosal sites that are exposed to billions of potentially antigenic particles daily. We demonstrated that epithelial cell-derived cytokine TGF-β had a central role in the generation of the pulmonary immune response. Mice that specifically lacked epithelial cell-derived TGF-β1 displayed a reduction in type 2 innate lymphoid cells (ILCs), resulting in suppression of interleukin-13 and hallmark features of the allergic response including airway hyperreactivity. ILCs in the airway lumen were primed to respond to TGF-β by expressing the receptor TGF-βRII and ILC chemoactivity was enhanced by TGF-β. These data demonstrate that resident epithelial cells instruct immune cells, highlighting the central role of the local environmental niche in defining the nature and magnitude of immune reactions.