The long-term physiological consequences of SARS-CoV-2 – post-acute sequelae of COVID-19 (PASC), are rapidly evolving into a major public health concern. Increasing evidence links PASC to abnormal immune responses and organ recovery post infection but the underlying cellular and molecular etiology remains poorly defined. With insights from 3 independent PASC patient cohorts, we established a clinically relevant mouse model to study post-viral lung disease. Using spatial transcriptomics and imaging, we identified dysregulated proximal interactions between immune cells and epithelial progenitors unique to the fibroproliferation in respiratory PASC but not acute COVID-19 or idiopathic pulmonary fibrosis. Specifically, we found a central role for lung-resident CD8+ T cell-macrophage interactions in maintaining dysplastic epithelial progenitors, thus impairing alveolar regeneration post injury. Mechanistically, CD8+ T cell-derived IFN-γ and TNF stimulated local macrophages to chronically release IL-1β, resulting in the abnormal accumulation of immature epithelial progenitors and lung fibrosis. Notably, therapeutic neutralization of IFN-γ and TNF, or IL-1β after acute infection resulted in markedly improved repair and pulmonary function. In contrast to other approaches requiring early intervention, we highlight therapeutic strategies to rescue fibrotic disease in the aftermath of respiratory viral infections, addressing the current unmet need in the clinical management of PASC.