The cyclin-dependent kinase inhibitor p21(Cip1/WAF1) has been implicated as an inducer of differentiation. However, although expression of p21 is increased in postmitotic cells immediately adjacent to the proliferative compartment, its expression is decreased in cells further along the differentiation program. Expression of the p21 protein was decreased in terminally differentiated primary keratinocytes of mice, and this occurred by a proteasome-dependent pathway. Forced expression of p21 in these cells inhibited the expression of markers of terminal differentiation at both the protein and messenger RNA levels. These inhibitory effects on differentiation were not observed with a carboxyl-terminal truncation mutant or with the unrelated cyclin-dependent kinase inhibitor p16(INK4a), although all these molecules exerted similar inhibition of cell growth. These findings reveal an inhibitory role of p21 in the late stages of differentiation that does not result from the effects of p21 on the cell cycle.