Bovine respiratory disease (BRD) is the leading cause of morbidity and mortality in feedlot cattle. Bovine herpesvirus-1 (BHV-1) is one of the main culprits of BRD; however, research on BHV-1 is hampered by the lack of suitable models for infection and drug testing. In this study, we established a novel bovine tracheal organoid culture grown in a basement membrane extract type 2 (BME2) matrix and compared it with the air–liquid interface (ALI) culture system. After differentiation, the matrix-embedded organoids developed beating cilia and demonstrated a transcriptomic profile similar to the ALI culture system. The matrix-embedded organoids were also highly susceptible to BHV-1 infection and immune stimulation by Pam2Cys, an immunomodulator, which resulted in robust cytokine production and tracheal antimicrobial peptide mRNA upregulation. However, treatment of bovine tracheal organoid cultures with Pam2Cys was not sufficient to inhibit viral infection or replication, suggesting a role of the non-epithelial cellular microenvironment in vivo.