Epidermal homeostasis depends on a balance between stem cell renewal and differentiation and is regulated by extrinsic signals from the extracellular matrix (ECM). A powerful approach to analysing the pathways involved is to engineer single-cell microenvironments in which individual variables are precisely and quantitatively controlled. Here, we employ micropatterned surfaces to identify the signalling pathways by which restricted ECM contact triggers human epidermal stem cells to initiate terminal differentiation. On small (20 microm diameter) circular islands, keratinocytes remained rounded, and differentiated at higher frequency than cells that could spread on large (50 microm diameter) islands. Differentiation did not depend on ECM composition or density. Rather, the actin cytoskeleton mediated shape-induced differentiation by regulating serum response factor (SRF) transcriptional activity. Knockdown of SRF or its co-factor MAL inhibited differentiation, whereas overexpression of MAL stimulated SRF activity and involucrin expression. SRF target genes FOS and JUNB were also required for differentiation: c-Fos mediated serum responsiveness, whereas JunB was regulated by actin and MAL. Our findings demonstrate how biophysical cues are transduced into transcriptional responses that determine epidermal cell fate.