Liver X receptor-alpha and -beta are members of the nuclear hormone receptor superfamily that heterodimerize with retinoid X receptor and are activated by oxysterols. In recent studies we found that treatment of cultured human keratinocytes with oxysterolstimulated differentiation, as demonstrated by increased expression of involucrin and transglutaminase, and inhibited proliferation. The aims of this study were to determine: (i) whether oxysterols applied topically to the skin of mice induce differentiation in normal epidermis; (ii) whether this effect is mediated via liver X receptor-alpha and/or liver X receptor-beta; and (iii) whether oxysterols normalize epidermal morphology in an animal model of epidermal hyperplasia. Topical treatment of normal hairless mice with 22(R)-hydroxycholesterol or 24(S),25-epoxycholesterol resulted in a decrease in epidermal thickness and a decrease in keratinocyte proliferation assayed by proliferating cell nuclear antigen staining. Moreover, oxysterol treatment increased the levels of involucrin, loricrin, and profilaggrin protein and mRNA in the epidermis, indicating that oxysterols stimulate epidermal differentiation. Additionally, topical oxysterol pretreatment improved permeability barrier homeostasis. Whereas liver X receptor-alpha-/- mice revealed no alterations in epidermal differentiation, the epidermis was thinner in liver X receptor-beta-/- mice than in wild-type mice, with a reduced number of proliferating cell nuclear antigen positive cells and a modest reduction in the expression of differentiation markers. Topical oxysterol treatment induced differentiation in liver X receptor-alpha-/- mice whereas in liver X receptor-beta-/- mice there was no increase in the expression of differentiation markers. Whereas both liver X receptor-alpha and liver X receptor-beta are expressed in cultured human keratinocytes and in fetal rat skin, only liver X receptor-beta was observed on northern blotting in adult mouse epidermis. Finally, treatment of hyperproliferative epidermis with oxysterols restored epidermal homeostasis. These studies demonstrate that epidermal differentiation is regulated by liver X receptor-beta and that oxysterols, acting via liver X receptor-beta, can induce differentiation and inhibit proliferation in vivo. The ability of oxysterols to reverse epidermal hyperplasia suggests that these agents could be beneficial for the treatment of skin disorders associated with hyperproliferation and/or altered differentiation.