Epithelial progenitor cells of the lung generate all cell types of the mature airway epithelium, among them the neuroendocrine cells. The balance between formation of pulmonary neuroendocrine and non-neuroendocrine cells is controlled by Notch signaling. The Notch target gene Hes1 is expressed by non-neuroendocrine and absent in neuroendocrine cells. The transcription factor Ascl1 is expressed in a complementary pattern and provides key regulatory information that specifies the neuroendocrine cell fate. The molecular events that occur after the induction of the neuroendocrine differentiation program have received little attention. Here we show that Insm1 is expressed in pulmonary neuroendocrine cells, and that Insm1 expression is not initiated in the lung of Ascl1 mutant mice. We use mouse genetics to show that pulmonary neuroendocrine cells depend on Insm1 for their differentiation. Mutation of Insm1 blocks terminal differentiation, upregulates Hes1 protein in neuroendocrine cells and interferes with maintenance of Ascl1 expression. We show that Insm1 binds to the Hes1 promoter and represses Hes1, and we propose that the Insm1-dependent Hes1 repression is required for neuroendocrine development. Our work demonstrates that Insm1 is a key factor regulating differentiation of pulmonary neuroendocrine cells.