Water is absolutely essential for the normal functioning of the skin and especially its outer layer, the stratum corneum (SC). Loss of water from the skin must be carefully regulated, a function dependent on the complex nature of the SC. The retention of water in the SC is dependent on two major components: (1) the presence of natural hygroscopic agents within the corneocytes (collectively referred to as natural moisturizing factor) and (2) the SC intercellular lipids orderly arranged to form a barrier to transepidermal water loss (TEWL). The water content of the SC is necessary for proper SC maturation and skin desquamation. Increased TEWL impairs enzymatic functions required for normal desquamation resulting in the visible appearance of dry, flaky skin. There have been recent discoveries regarding the complex mechanisms of skin hydration. In particular, it has been discovered that glycerol, a well-known cosmetic ingredient, exists in the SC as a natural endogenous humectant. Hyaluronan, which has been regarded mainly as dermal component, is found in the epidermis and is important for maintaining normal SC structure and epidermal barrier function. More importantly, the discovery of the existence of the water-transporting protein aquaporin-3 in the viable epidermis and the presence of tight junction structures at the junction between the stratum granulosum and SC have brought new insights into the mechanisms of skin water distribution and barrier function.