Effective derivation of functional airway organoids from induced pluripotent stem cells (iPSCs) would provide valuable models of lung disease and facilitate precision therapies for airway disorders such as cystic fibrosis. However, limited understanding of human airway patterning has made this goal challenging. Here, we show that cyclical modulation of the canonical Wnt signaling pathway enables rapid directed differentiation of human iPSCs via an NKX2-1 progenitor intermediate into functional proximal airway organoids. We find that human NKX2-1 progenitors have high levels of Wnt activation but respond intrinsically to decreases in Wnt signaling by rapidly patterning into proximal airway lineages at the expense of distal fates. Using this directed approach, we were able to generate cystic fibrosis patient-specific iPSC-derived airway organoids with a defect in forskolin-induced swelling that is rescued by gene editing to correct the disease mutation. Our approach has many potential applications in modeling and drug screening for airway diseases.