p21(WAF1/Cip1) is one of the best characterized downstream targets of p53, and the growth suppressing function of this cyclin-dependent kinase inhibitor is well established. However, whether p21 exerts a tumor-suppressing function of its own remains to be established. We report here that, similarly to loss of p53, disruption of the p21(WAF1/Cip1) gene results in a markedly increased susceptibility to chemically induced skin carcinoma formation, whereas the number of papillomas is reduced. Previous evidence indicates that malignant versus benign keratinocyte tumor formation is likely to involve distinct target-cell populations with a different commitment to differentiation. In parallel with the increased susceptibility to carcinoma formation, loss of p21(WAF1/Cip1) was found to promote keratinocyte subpopulations with increased growth/differentiation potential, including clonal growth capability, reversible commitment to differentiation, and capability to generate all types of terminally differentiated keratinocytes present in vivo, not only in the interfollicular epidermis but also in hair follicles. Thus, these findings have revealed a function of p21 as a suppressor of malignant but not benign skin-tumor formation and a determinant of the growth/differentiation potential of keratinocyte subpopulations.