In epidermis, Ras can influence proliferation and differentiation; however, regulators of epidermal Ras function are not fully characterized, and Ras effects on growth and differentiation are controversial. EGF induced Ras activation in epidermal cells along with phosphorylation of the multisubstrate docking protein Gab1 and its binding to SHP-2. Expression of mutant Gab1Y627F deficient in SHP-2 binding or dominant-negative SHP-2C459S reduced basal levels of active Ras and downstream MAPK proteins and initiated differentiation. Differentiation triggered by both Gab1Y627F and SHP-2C459S could be blocked by coexpression of active Ras, consistent with Gab1 and SHP-2 action upstream of Ras in this process. To study the role of Gab1 and SHP-2 in tissue, we generated human epidermis overexpressing active Gab1 and SHP-2. Both proteins stimulated proliferation. In contrast, Gab1Y627F and SHP-2C459S inhibited epidermal proliferation and enhanced differentiation. Consistent with a role for Gab1 and SHP-2 in sustaining epidermal Ras/MAPK activity, Gab1-/- murine epidermis displayed lower levels of active Ras and MAPK with postnatal Gab1-/- epidermis, demonstrating the hypoplasia and enhanced differentiation seen previously with transgenic epidermal Ras blockade. These data provide support for a Ras role in promoting epidermal proliferation and opposing differentiation and indicate that Gab1 and SHP-2 promote the undifferentiated epidermal cell state by facilitating Ras/MAPK signaling.