Obliterative bronchiolitis (OB) is the histopathological finding in chronic lung allograft rejection. Mounting evidence suggests that epithelial damage drives the development of airway fibrosis in OB. Tissue inhibitor of metalloproteinase (TIMP)-1 expression increases in lung allografts and is associated with the onset of allograft rejection. Furthermore, in a mouse model of OB, airway obliteration is reduced in TIMP-1-deficient mice. Matrilysin (matrix metallproteinase-7) is essential for airway epithelial repair and is required for the re-epithelialization of airway wounds by facilitating cell migration; therefore, the goal of this study was to determine whether TIMP-1 inhibits re-epithelialization through matrilysin. We found that TIMP-1 and matrilysin co-localized in the epithelium of human lungs with OB and both co-localized and co-immunoprecipitated in wounded primary airway epithelial cultures. TIMP-1-deficient cultures migrated faster, and epithelial cells spread to a greater extent compared with wild-type cultures. TIMP-1 also inhibited matrilysin-mediated cell migration and spreading in vitro. In vivo, TIMP-1 deficiency enhanced airway re-epithelialization after naphthalene injury. Furthermore, TIMP-1 and matrilysin co-localized in airway epithelial cells adjacent to the wound edge. Our data demonstrate that TIMP-1 interacts with matrix metalloproteinases and regulates matrilysin activity during airway epithelial repair. Furthermore, we speculate that TIMP-1 overexpression restricts airway re-epithelialization by inhibiting matrilysin activity, contributing to a stereotypic injury response that promotes airway fibrosis via bronchiole airway epithelial damage and obliteration.