The development of chronic obstructive pulmonary disease (COPD) pathogenesis remains unclear, but emerging evidence supports a crucial role for inducible bronchus-associated lymphoid tissue (iBALT) in disease progression. Mechanisms underlying iBALT generation, particularly during chronic CS exposure, remain to be defined. Oxysterol metabolism of cholesterol is crucial to immune cell localization in secondary lymphoid tissue. Here, we demonstrate that oxysterols also critically regulate iBALT generation and the immune pathogenesis of COPD. In both COPD patients and cigarette smoke (CS)-exposed mice, we identified significantly upregulated CH25H and CYP7B1 expression in airway epithelial cells, regulating CS-induced B-cell migration and iBALT formation. Mice deficient in CH25H or the oxysterol receptor EBI2 exhibited decreased iBALT and subsequent CS-induced emphysema. Further, inhibition of the oxysterol pathway using clotrimazole resolved iBALT formation and attenuated CS-induced emphysema in vivo therapeutically. Collectively, our studies are the first to mechanistically interrogate oxysterol-dependent iBALT formation in the pathogenesis of COPD, and identify a novel therapeutic target for the treatment of COPD and potentially other diseases driven by the generation of tertiary lymphoid organs.