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Keratinocyte growth factor (KGF) is a critical growth factor in lung development and is a protective agent after lung injury, although the exact mechanisms of this protective effect have not yet been elucidated. Our laboratory has shown that circulating epithelial progenitor cells can traffic to the airway and that they appear to be derived from the bone marrow. On this basis, we hypothesized that KGF and its putative receptor (KGFR) would be important to these cells. We showed that the KGFR, which is found almost exclusively on epithelial cells, was present on cells in the bone marrow and circulation of mice that identified a subpopulation of cytokeratin 5+ circulating epithelial progenitor cells (CEPC). In addition, the KGFR co-localized with a population of cytokeratin 5+ basal cells in the repairing proximal airway. Systemic administration of KGF resulted in a significant increase in mobilization of cytokeratin 5+ CEPC at 6 h after injection. Administration of KGF to mouse recipients of heterotopic syngeneic tracheal transplants resulted in protection and more rapid repair of the tracheal epithelium, with an increase in the number of CEPC in the epithelium of the airway, and this effect was abrogated by blocking CEPC with anti-CXCL12 antibodies. KGF therefore appears to be an important growth factor for local resident progenitor epithelial cell repair and for mobilization and enhanced engraftment of CEPC to the injured proximal airway epithelium.