The canonical Wnt/β-catenin pathway plays crucial roles in various aspects of lung morphogenesis and regeneration/repair. Here, we examined the lung phenotype and function in mice lacking the Wnt/β-catenin antagonist Chibby (Cby). In support of its inhibitory role in canonical Wnt signaling, expression of β-catenin target genes is elevated in the Cby(-/-) lung. Notably, Cby protein is prominently associated with the centrosome/basal body microtubule structures in embryonic lung epithelial progenitor cells, and later enriches as discrete foci at the base of motile cilia in airway ciliated cells. At birth, Cby(-/-) lungs are grossly normal but spontaneously develop alveolar airspace enlargement with reduced proliferation and abnormal differentiation of lung epithelial cells, resulting in altered pulmonary function. Consistent with the Cby expression pattern, airway ciliated cells exhibit a marked paucity of motile cilia with apparent failure of basal body docking. Moreover, we demonstrate that Cby is a direct downstream target for the master ciliogenesis transcription factor Foxj1. Collectively, our results demonstrate that Cby facilitates proper postnatal lung development and function.