In keratinocytes aquaporin-3 (AQP3), an efficient glycerol transporter, is associated with phospholipase D2 (PLD2) in caveolin-rich membrane microdomains. PLD catalyzes both phospholipid hydrolysis to produce phosphatidate and a transphosphatidylation reaction using primary alcohols to generate phosphatidylalcohols. As PLD2 can utilize the physiological alcohol glycerol to form phosphatidylglycerol (PG), we hypothesized that AQP3 provides glycerol to PLD2 for PG synthesis, which then modulates keratinocyte function. Acidic medium inhibits AQP3 transport activity; both glycerol uptake and PG synthesis were inhibited by low versus physiological pH. Co-transfection experiments were performed in which AQP3 or empty vector was introduced into keratinocytes simultaneously with reporter constructs in which differentiation or proliferation promoters directed expression of a luciferase reporter gene. AQP3 coexpression decreased the promoter activity of keratin 5, increased that of keratin 10 and enhanced the effect of a differentiating agent on the promoter activity of involucrin, consistent with promotion of early differentiation. Glycerol inhibited DNA synthesis, whereas equivalent concentrations of xylitol or sorbitol, as osmotic controls, had no effect. Direct provision of PG, but not phosphatidylpropanol, inhibited DNA synthesis in proliferative cells. Thus, our results support the idea that AQP3 supplies PLD2 with glycerol for synthesizing PG, a lipid signal that promotes early keratinocyte differentiation.