Evidence points to an indispensable function of macrophages in tissue regeneration, yet the underlying molecular mechanisms remain elusive. Here we demonstrate a protective function for the IL-33-ST2 axis in bronchial epithelial repair, and implicate ST2 in myeloid cell differentiation. ST2 deficiency in mice leads to reduced lung myeloid cell infiltration, abnormal alternatively activated macrophage (AAM) function, and impaired epithelial repair post naphthalene-induced injury. Reconstitution of wild type (WT) AAMs to ST2-deficient mice completely restores bronchial re-epithelialization. Central to this mechanism is the direct effect of IL-33-ST2 signaling on monocyte/macrophage differentiation, self-renewal and repairing ability, as evidenced by the downregulation of key pathways regulating myeloid cell cycle, maturation and regenerative function of the epithelial niche in ST2^−/− mice. Thus, the IL-33-ST2 axis controls epithelial niche regeneration by activating a large multi-cellular circuit, including monocyte differentiation into competent repairing AAMs, as well as group-2 innate lymphoid cell (ILC2)-mediated AAM activation.