The mechanisms that govern the maintenance and differentiation of tissue-specific progenitors in development and tissue regeneration are poorly understood. We show that development of Sox2+ progenitors in the lung endoderm is regulated by histone deacetylases 1 and 2 (Hdac1/2). Hdac1/2 deficiency leads to a loss of Sox2 expression and a block in proximal airway development. This is mediated in part by derepression of Bmp4 and the tumor suppressor Rb1, which are direct transcriptional targets of Hdac1/2. In contrast to development, postnatal loss of Hdac1/2 in airway epithelium does not affect the expression of Sox2 or Bmp4. However, postnatal loss of Hdac1/2 leads to increased expression of the cell-cycle regulators Rb1, p21/Cdkn1a, and p16/Ink4a, resulting in a loss of cell-cycle progression and defective regeneration of Sox2+ lung epithelium. Thus, Hdac1/2 have both common and unique targets that differentially regulate tissue-specific progenitor activity during development and regeneration.