Abstract Background Lung cancer tumorigenesis is mainly due to accumulation of genetic and epigenetic events in the respiratory epithelium. Epigenetic alteration is more frequent than somatic mutation in lung cancer. CpG island methylation of homeobox-associated genes is commonly seen in most early stage tumors. This study aimed at examining the potential usefulness of DNA methylation biomarker SHOX2, in broncho-alveolar lavage, in the diagnosis of lung cancer. Broncho-alveolar lavage was obtained from 80 patients; 60 cases with lung masses (proved malignant by histopathology) and 20 age and gender matched patients with benign lung lesions (benign controls). SHOX2 methylation status was evaluated using methylation analysis by restriction endonuclease digestion and real-time PCR. Results SHOX2 methylation level ranged 3.90–77.16% in cases, and 3.52–7.86% in controls, (p ≤ 0.001). SHOX2 methylation levels in comparison to tissue biopsy pathology (the gold standard test) had 76.92% sensitivity, 70% specificity, 87% positive predictive value, and 53.8% negative predictive value in diagnosing lung cancer. Different methylation levels were noted in different lung pathologies, (p = 0.003), with the highest methylation levels in squamous cell carcinoma followed by adenocarcinoma and anaplastic carcinoma then lastly carcinoma in situ. Conclusions SHOX2 methylation levels could differentiate different varieties of lung cancer from benign lung lesions.