The epidermis is a stratified squamous epithelium composed primarily of keratinocytes that become postmitotic and undergo sequential changes in gene expression during terminal differentiation. The expression of the transcription factor CCAAT/enhancer binding protein β (C/EBPβ) within mouse epidermis and primary keratinocytes has recently been described; however, the function of C/EBPβ within the epidermal keratinocyte is unknown. We report here that transient transfection of mouse primary keratinocytes with a C/EBP-responsive promoter-reporter construct resulted in a sevenfold increase in luciferase activity when keratinocytes were switched to culture conditions that induce growth arrest and differentiation. Forced expression of C/EBPβ in BALB/MK2 keratinocytes inhibited growth, induced morphological changes consistent with a more differentiated phenotype, and upregulated two early markers of differentiation, keratin 1 (K1) and keratin 10 (K10) but had a minimal effect on the expression of late-stage markers, loricrin and involucrin. Analysis of the epidermis of C/EBPβ-deficient mice revealed a mild epidermal hyperplasia and decreased expression of K1 and K10 but not of involucrin and loricrin. C/EBPβ-deficient primary keratinocytes were partially resistant to calcium-induced growth arrest. Analysis of terminally differentiated spontaneously detached keratinocytes or those induced to differentiate by suspension culture revealed that C/EBPβ-deficient keratinocytes displayed striking decreases in K1 and K10, while expression of later-stage markers was only minimally altered. Our results demonstrate that C/EBPβ plays an important role in the early events of stratified squamous differentiation in keratinocytes involving growth arrest and K1 and K10 expression.