p63, a recently identified member of the p53 gene family, encodes multiple products with transactivating, death-inducing, and dominant-negative activities. We show that in normal human epidermis, in hair follicles, and in stratified epidermal cultures, p63 protein is principally restricted to cells with high proliferative potential and is absent from the cells that are undergoing terminal differentiation. In normal human epidermis and in hair follicles, basal cells with abundant p63 are interspersed with cells with little or no p63. Whenever p63 mRNA is present, it encodes mainly truncated, potentially dominant-negative isotypes. In squamous cell carcinomas, the number of cells containing p63 and their distribution depends on the degree of anaplasia. In highly differentiated tumors, p63 is confined to a ring of basal-like cells surrounding, but at a distance from, centers of terminal differentiation. In less differentiated tumors, most cells contain p63 and their distribution is chaotic with respect to centers of terminal differentiation. p63 appears to be a valuable diagnostic marker for anaplastic keratinocytes.