In chronic obstructive pulmonary disease (COPD) apoptotic bronchial epithelial cells are increased, and their phagocytosis by alveolar macrophages (AM) is decreased alongside bacterial phagocytosis. Epithelial cellular lipids, including those exposed on uncleared apoptotic bodies, can become oxidized, and may be recognized and presented as non-self by antigen presenting cells. CD1b is a lipid-presenting protein, previously only described in dendritic cells. We investigated whether CD1b is upregulated in COPD AM, and whether lipid oxidation products are found in the airways of cigarette smoke (CS) exposed mice. We also characterise CD1b for the first time in a range of macrophages and assess CD1b expression and phagocytic function in response to oxidised lipid. Bronchoalveolar lavage and exhaled breath condensate were collected from never-smoker, current-smoker, and COPD patients and AM CD1b expression and airway 8-isoprostane levels assessed. Malondialdehyde was measured in CS-exposed mouse airways by confocal/immunofluorescence. Oxidation of lipids produced from CS-exposed 16HBE14o- (HBE) bronchial epithelial cells was assessed by spectrophotometry and changes in lipid classes assessed by mass spectrometry. 16HBE cell toxicity was measured by flow cytometry as was phagocytosis, CD1b expression, HLA class I/II, and mannose receptor (MR) in monocyte derived macrophages (MDM). AM CD1b was significantly increased in COPD smokers (4.5 fold), COPD ex-smokers (4.3 fold), and smokers (3.9 fold), and AM CD1b significantly correlated with disease severity (FEV1) and smoking pack years. Airway 8-isoprostane also increased in smokers and COPD smokers and ex-smokers. Malondialdehyde was significantly increased in the bronchial epithelium of CS-exposed mice (MFI of 18.18 vs 23.50 for control). Oxidised lipid was produced from CS-exposed bronchial epithelial cells (9.8-fold of control) and showed a different overall lipid makeup to that of control total cellular lipid. This oxidised epithelial lipid significantly upregulated MDM CD1b, caused bronchial epithelial cell toxicity, and reduced MDM phagocytic capacity and MR in a dose dependent manner. Increased levels of oxidised lipids in the airways of COPD patients may be responsible for reduced phagocytosis and may become a self-antigen to be presented by CD1b on macrophages to perpetuate disease progression despite smoking cessation.