Postnatal tissue quiescence is thought to be a default state in the absence of a proliferative stimulus such as injury. Although previous studies have demonstrated that certain embryonic developmental programs are reactivated aberrantly in adult organs to drive repair and regeneration, it is not well understood how quiescence is maintained in organs such as the lung, which displays a remarkably low level of cellular turnover. Here we demonstrate that quiescence in the adult lung is an actively maintained state and is regulated by hedgehog signalling. Epithelial-specific deletion of sonic hedgehog (Shh) during postnatal homeostasis in the murine lung results in a proliferative expansion of the adjacent lung mesenchyme. Hedgehog signalling is initially downregulated during the acute phase of epithelial injury as the mesenchyme proliferates in response, but returns to baseline during injury resolution as quiescence is restored. Activation of hedgehog during acute epithelial injury attenuates the proliferative expansion of the lung mesenchyme, whereas inactivation of hedgehog signalling prevents the restoration of quiescence during injury resolution. Finally, we show that hedgehog also regulates epithelial quiescence and regeneration in response to injury via a mesenchymal feedback mechanism. These results demonstrate that epithelial-mesenchymal interactions coordinated by hedgehog actively maintain postnatal tissue homeostasis, and deregulation of hedgehog during injury leads to aberrant repair and regeneration in the lung.