CD44 is a broadly distributed polymorphic glycoprotein that serves as the principal cell-surface receptor for hyaluronate. Although CD44-mediated cell interaction with hyaluronate has been implicated in a variety of physiologic events, including cell-cell and cell-substrate adhesion, cell migration, proliferation, and activation, as well as hyaluronate uptake and degradation, the biologic role of CD44 in vivo in various tissues remains to be determined. In the present work we have developed transgenic mice that express an antisense CD44 cDNA driven by the keratin-5 promoter. These mice lack detectable CD44 expression in skin keratinocytes and corneal epithelium and display abnormal hyaluronate accumulation in the superficial dermis and corneal stroma, distinct morphologic alterations of basal keratinocytes and cornea, and defective keratinocyte proliferation in response to mitogen and growth factors. These alterations are reflected by a decrease in skin elasticity, impaired local inflammatory response and tissue repair, delayed hair regrowth, and failure of the epidermis to undergo hyperplasia in response to carcinogen. Our observations indicate that two major functions of CD44 in skin are the regulation of keratinocyte proliferation in response to extracellular stimuli and the maintenance of local hyaluronate homeostasis