Compartmentalization and differential expression of signalling molecules in skin and cultured keratinocytes have provided clues to the regulatory pathways that are involved in epidermal differentiation. The discovery that mouse and human basal keratinocytes with a high growth fraction can be cultured in medium with a Ca2+ concentration of 0.05 mM, whereas medium with Ca2+ greater than 0.1 mM induces terminal differentiation, has greatly facilitated the analysis of the regulation of keratinocyte growth and differentiation. Chelation of intracellular Ca2+ specifically Inhibits the expression of epidermal differentiation markers. Analysis of intracellular Ca2+ by digital imaging indicates that an increase in Ca2+ bound to intracellular stores Is required for marker expression. Keratinocyte differentiation is associated with an increase in protein kinase C (PKC) isoforms epsilon and eta and translocation of PKCalpha from cytosol to membrane fractions. The specific requirement for activation of PKCalpha in differentiating keratinocytes is suggested by the use of isoform specific inhibitors of PKCalpha which block the expression of markers of keratinocyte differentiation. The interaction of basal cells with the basement membrane is mediated by the expression of specific integrins, particularly the alpha6beta4 integrin complex that is polarized to the basal surface of basal cells. Differentiating keratinocytes down regulate the alpha6beta4 complex Initially but retain the alpha3beta1 integrin complex until a later stage of differentiation. These changes are associated with a decrease in adhesion to basement membrane and an increase in cell-cell contact. Regulation of gene expression during epidermal differentiation may be associated with an Increase In AP-1 activity and elevated expression of members of the C-fos gene family. Basal keratinocytes are growth stimulated by EGF receptor ligands, and several of these, including TGFalpha, HB-EGF, amphiregulin and beta-cellulin, are coordinately upregulated by proliferative stimuli. Furthermore, growth factors appear to stimulate hair follicle formation and hair growth in an in vivo model for reconstituting a haired skin.