p21Cip1/WAF1 was the first cyclin-dependent kinase (CDK) inhibitor to be identified, as a mediator of p53 in DNA damage-induced growth arrest, cell senescence, and direct CDK regulation. p21 may also play an important role in differentiation-associated growth arrest, as its expression is augmented in many terminally differentiating cells. A general involvement of p21 in growth/differentiation control and tumor suppression has been questioned, as mice lacking p21 undergo a normal development, harbor no gross alterations in any of their organs, and exhibit no increase in spontaneous tumor development. However, a significant imbalance between growth and differentiation could be unmasked under conditions where normal homeostatic mechanisms are impaired. We report here that primary keratinocytes derived from p21 knockout mice, transformed with a ras oncogene, and injected subcutaneously into nude mice exhibit a very aggressive tumorigenic behavior, which is not observed with wild-type control keratinocytes nor with keratinocytes with a disruption of the closely related p27 gene. p21 knockout keratinocytes tested under well-defined in vitro conditions show a significantly increased proliferative potential, which is also observed but to a lesser extent with p27 knockout cells. More profound differences were found in the differentiation behavior of p21 versus p27 knockout keratinocytes, with p21 (but not p27) deficiency causing a drastic down-modulation of differentiation markers linked with the late stages of the keratinocyte terminal differentiation program. Thus, our results reveal a so far undetected role of p21 in tumor suppression, demonstrate that this function is specific as it cannot be attributed to the closely related p27 molecule, and point to an essential involvement of p21 in terminal differentiation control, which may account for its role in tumor suppression.