Basal cells (BCs) are stem/progenitor cells of the mucociliary airway epithelium, and their differentiation is orchestrated by the NOTCH signaling pathway. NOTCH3 receptor signaling regulates BC to club cell differentiation; however, the downstream responses that regulate this process are unknown. Overexpression of the active NOTCH3 intracellular domain (NICD3) in primary human bronchial epithelial cells (HBECs) on in vitro air–liquid interface culture promoted club cell differentiation. Bulk RNA-seq analysis identified 692 NICD3-responsive genes, including the classical NOTCH target HEYL, which increased in response to NICD3 and positively correlated with SCGB1A1 (club cell marker) expression. siRNA knockdown of HEYL decreased tight junction formation and cell proliferation. Further, HEYL knockdown reduced club, goblet and ciliated cell differentiation. In addition, we observed decreased expression of HEYL in HBECs from donors with chronic obstructive pulmonary disease (COPD) vs. normal donors which correlates with the impaired differentiation capacity of COPD cells. Finally, overexpression of HEYL in COPD HBECs promoted differentiation into club, goblet and ciliated cells, suggesting the impaired capacity of COPD cells to generate a normal airway epithelium is a reversible phenotype that can be regulated by HEYL. Overall, our data identify the NOTCH3 downstream target HEYL as a key regulator of airway epithelial differentiation.