The transcriptional regulators that couple interfollicular basal keratinocyte proliferation arrest to commitment and differentiation are yet to be identified. Here we report that the basic region leucine zipper transcription factors C/EBPalpha and C/EBPbeta are co-expressed in basal keratinocytes, and are coordinately upregulated as keratinocytes exit the basal layer and undergo terminal differentiation. Mice lacking both C/EBPalpha and beta in the epidermis showed increased proliferation of basal keratinocytes and impaired commitment to differentiation. This led to ectopic expression of keratin 14 (K14) and DeltaNp63 in suprabasal cells, decreased expression of spinous and granular layer proteins, parakeratosis and defective epidermal water barrier function. Knock-in mutagenesis revealed that C/EBP-E2F interaction was required for control of interfollicular epidermis (IFE) keratinocyte proliferation, but not for induction of spinous and granular layer markers, whereas C/EBP DNA binding was required for DeltaNp63 downregulation and K1/K10 induction. Finally, loss of C/EBPalpha/beta induced stem cell gene expression signatures in the epidermis. C/EBPs, therefore, couple basal keratinocyte cell cycle exit to commitment to differentiation through E2F repression and DNA binding, respectively, and may act to restrict the epidermal stem cell compartment.