Tissue repair programs must function alongside antiviral immunity to restore the lung epithelial barrier following infection. We found that macrophage-derived oncostatin M (OSM) counteracted the pathological effects of type I interferon (IFN-I) during infection and damage in mice. At baseline, OSM-deficient mice exhibited altered alveolar type II (ATII) epithelial cell states. In response to influenza or viral mimic challenge, mice lacking OSM exhibited heightened IFN-I responses and increased mortality. OSM delivery to the lung induced ATII proliferation and was sufficient to protect deficient mice against morbidity. Furthermore, OSM promoted organoid formation despite the growth-inhibitory effects of IFN-I. These findings identify OSM as an indispensable macrophage-derived growth factor that maintains the homeostasis of lung epithelial cells and promotes their proliferation to overcome IFN-I-mediated immunopathology.