Although olfactory mucosa possesses long-lived horizontal basal stem cells (HBCs) and remarkable regenerative capacity, the function of human olfactory neuroepithelium is significantly impaired in chronic inflammatory rhinosinusitis. Here, we show that, while inflammation initially damages olfactory neurons and activates HBC-mediated regeneration, continued inflammation locks HBCs in an undifferentiated state. Global gene expression in mouse HBCs reveals broad upregulation of NF-κB-regulated cytokines and chemokines including CCL19, CCL20, and CXCL10, accompanied by enhancement of "stemness"-related transcription factors. Loss-of-function studies identify an NF-κB-dependent role of HBCs in amplifying inflammatory signaling, contributing to macrophage and T cell local proliferation. Chronically activated HBCs signal macrophages to maintain immune defense and prevent Treg development. In diseased human olfactory tissue, activated HBCs in a P63⁺ undifferentiated state similarly contribute to inflammation through chemokine production. These observations establish a mechanism of chronic rhinosinusitis-associated olfactory loss, caused by a functional switch of neuroepithelial stem cells from regeneration to immune defense.