Capillary instability of a two-layer liquid film lining a rigid tube is studied computationally as a model for liquid plug formation and closure of human airways. The two-layer liquid consists of a serous layer, also called the periciliary liquid layer, at the inner side and a mucus layer at the outer side. Together, they form the airway surface liquid lining the airway wall and surrounding an air core. Liquid plug formation occurs due to Plateau–Rayleigh instability when the liquid film thickness exceeds a critical value. Numerical simulations are performed for the entire closure process, including the pre- and post-coalescence phases. The mechanical stresses and their gradients on the airway wall are investigated for physiologically relevant ranges of the mucus-to-serous thickness ratio, the viscosity ratio, and the air–mucus and serous–mucus surface tensions encompassing healthy and pathological conditions of a typical adult human lung. The growth rate of the two-layer model is found to be higher in comparison with a one-layer equivalent configuration. This leads to a much sooner closure in the two-layer model than that in the corresponding one-layer model. Moreover, it is found that the serous layer generally provides an effective protection to the pulmonary epithelium against high shear stress excursions and their gradients. A linear stability analysis is also performed, and the results are found to be in good qualitative agreement with the simulations. Finally, a secondary coalescence that may occur during the post-closure phase is investigated.