SOX2 expression levels are crucial for the balance between maintenance and differentiation of airway progenitor cells during development and regeneration. Here, we describe patterning of the mouse proximal airway epithelium by SOX21, which coincides with high levels of SOX2 during development. Airway progenitor cells in this SOX2+/SOX21+ zone show differentiation to basal cells, specifying cells for the extrapulmonary airways. Loss of SOX21 showed an increased differentiation of SOX2+ progenitor cells to basal and ciliated cells during mouse lung development. We propose a mechanism where SOX21 inhibits differentiation of airway progenitors by antagonizing SOX2-induced expression of specific genes involved in airway differentiation. Additionally, in the adult tracheal epithelium SOX21 inhibits basal to ciliated cell differentiation. This suppressing function of SOX21 on differentiation contrasts SOX2, which mainly drives differentiation of epithelial cells during development and regeneration after injury. Furthermore, using human fetal lung organoids and adult bronchial epithelial cells, we show that SOX2+/SOX21+ regionalization is conserved. Lastly, we show that the interplay between SOX2 and SOX21 is context and concentration dependent leading to regulation of differentiation of the airway epithelium.