Barrier tissue dysfunction is a fundamental feature of chronic human inflammatory diseases 1. Specialized subsets of epithelial cells—including secretory and ciliated cells—differentiate from basal stem cells to collectively protect the upper airway 2, 3, 4. Allergic inflammation can develop from persistent activation 5 of type 2 immunity 6 in the upper airway, resulting in chronic rhinosinusitis, which ranges in severity from rhinitis to severe nasal polyps 7. Basal cell hyperplasia is a hallmark of severe disease 7, 8, 9, but it is not known how these progenitor cells 2, 10, 11 contribute to clinical presentation and barrier tissue dysfunction in humans. Here we profile primary human surgical chronic rhinosinusitis samples (18,036 cells, n= 12) that span the disease spectrum using Seq-Well for massively parallel single-cell RNA sequencing 12, report transcriptomes for human respiratory epithelial, immune and stromal cell types and subsets from a type 2 inflammatory disease, and map key mediators. By comparison with nasal scrapings (18,704 cells, n= 9), we define signatures of core, healthy, inflamed and polyp secretory cells. We reveal marked differences between the epithelial compartments of the non-polyp and polyp cellular ecosystems, identifying and validating a global reduction in cellular diversity of polyps characterized by basal cell hyperplasia, concomitant decreases in glandular cells, and phenotypic shifts in secretory cell antimicrobial expression. We detect an aberrant basal progenitor differentiation trajectory in polyps, and propose cell-intrinsic 13, epigenetic 14, 15 and extrinsic factors 11, 16, 17 that lock polyp basal cells into this uncommitted state. Finally, we functionally demonstrate that ex vivo cultured basal cells retain intrinsic memory of IL-4/IL-13 exposure, and test the potential for clinical blockade of the IL-4 receptor α-subunit to modify basal and secretory cell states in vivo. Overall, we find that reduced epithelial diversity stemming from functional shifts in basal cells is a key characteristic of type 2 immune-mediated barrier tissue dysfunction. Our results demonstrate that epithelial stem cells may contribute to the persistence of human disease by serving as repositories for allergic memories.