The signaling crosstalk between the tracheal mesenchyme and epithelium has not been researched extensively leaving a substantial gap of knowledge in the mechanisms dictating embryonic development of the proximal airways by the adjacent mesenchyme. Recently, we have reported that embryos lacking mesenchymal expression of Sox9 did not develop tracheal cartilage rings and showed altered differentiation of the tracheal epithelium. Herein, we propose that tracheal cartilage provides local inductive signals responsible for the proper differentiation, metabolism, and inflammatory status regulation of the tracheal epithelium. The tracheal epithelium of mesenchyme-specific Sox9 mutants showed altered mRNA expression of various epithelial markers such as Pb1fa1, Sftpb, Scgb1a1, and Tff-1. In vitro tracheal epithelial cell cultures confirmed that tracheal chondrocytes secrete factors that inhibit club cell differentiation. Whole gene expression profiling and ingenuity pathway analysis showed that the TNF-a, IFN-g and TGF-b signaling pathways were significantly altered in the Sox9 mutant trachea. Tnf-a and Ifn-g interfered with the differentiation of tracheal epithelial progenitor cells into mature epithelial cell types in vitro. Meanwhile, mesenchymal knockout of Tgf-b1 in vivo resulted in altered differentiation of the tracheal epithelium. Finally, mitochondrial enzymes involved in fat and glycogen metabolism Cox8b and Cox7a1 were strongly up-regulated in the Sox9 mutant trachea, with consequently increased number and size of glycogen storage vacuoles. Our results support an inductive role for tracheal cartilage in the regulation of differentiation and metabolism, and the inflammatory status of the tracheal epithelium by altering the signaling of the TNF-a, IFN-g and TGF-b signaling pathways.