Human lung cancers, including squamous cell carcinoma (SCC) are a leading cause of death and, whilst evidence suggests that basal stem cells drive SCC initiation and progression, the mechanisms regulating these processes remain unknown. In this study we show that β-catenin signalling regulates basal progenitor cell fate and subsequent SCC progression. In a cohort of preinvasive SCCs we established that elevated basal cell β-catenin signalling is positively associated with increased disease severity, epithelial proliferation and reduced intercellular adhesiveness. We demonstrate that transgene-mediated β-catenin inhibition within keratin 14-expressing basal cells delayed normal airway repair while basal cell-specific β-catenin activation increased cell proliferation, directed differentiation and promoted elements of early epithelial-mesenchymal transition (EMT), including increased Snail transcription and reduced E-cadherin expression. These observations are recapitulated in normal human bronchial epithelial cells in vitro following both pharmacological β-catenin activation and E-cadherin inhibition, and mirrored our findings in preinvasive SCCs. Overall, the data show that airway basal cell β-catenin determines cell fate and its mis-expression is associated with the development of human lung cancer. Copyright © 2012 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.