The appropriate maintenance and regeneration of the lung epithelium involves complex interactions between epithelial cells and resident stromal cells. In diseases like IPF, abnormal epithelial regeneration results in fibrosis, where (stromal) myofibroblasts accumulate and basal cells which are usually restricted to the airways appear adjacent to alveoli (i.e. honeycombing). Our work investigates whether myofibroblast accumulation and ectopic basal cell hyperplasia occur concomitantly, or have a cause and effect relationship. We used flow cytometry screening for bimodal distribution of surface markers to identify 8 distinct stromal populations in mice, which we then confirmed and characterised with RNA sequencing gene expression analyses. Three stromal populations highly expressed either Cthrc1, Cxcl12 or FGF10 and were termed mesenchymal stem cells, Cxcl12+ auxiliary stromal cells or FGF10+ auxiliary stromal cells, respectively. These 3 stromal populations also expressed markers for stem cell activity and exclusively supported epithelial cell proliferation in vitro. Additionally, in an influenza-induced lung injury model (recapitulating honeycombing lung injury), the same 3 stromal cell types were highly proliferative 7-14 days post-infection and this coincided with basal cell expansion. Importantly, proliferation of the 3 epithelial-supporting stromal populations and basal cells occurred before myofibroblast proliferation indicating that reciprocal signalling between stromal progenitor populations and ectopic basal cells occurs prior to, and likely drives, myofibroblast accumulation and fibrotic lung disease. Understanding which of these 8 newly identified stromal populations appropriately support epithelial regeneration, rather than impair it, is key in advancing mesenchymal/stromal stem cell therapies.