Notch plays a critical role in the transition from proliferation to differentiation in the epidermis and corneal epithelium. Furthermore, aberrant Notch signaling is a feature of diseases like psoriasis, eczema, nonmelanoma skin cancer, and melanoma where differentiation and proliferation are impaired. Whereas much is known about the downstream events following Notch signaling, factors responsible for negatively regulating Notch receptor signaling after ligand activation are incompletely understood. Notch can undergo hydroxylation by factor-inhibiting hypoxia-inducible factor 1 (FIH-1); however, the biological significance of this phenomenon is unclear. Here we show that FIH-1 expression is up-regulated in diseased epidermis and corneal epithelium. Elevating FIH-1 levels in primary human epidermal keratinocytes (HEKs) and human corneal epithelial keratinocytes (HCEKs) impairs differentiation in submerged cultures and in a "three-dimensional" organotypic raft model of human epidermis, in part, via a coordinate decrease in Notch signaling. Knockdown of FIH-1 enhances keratinocyte differentiation. Loss of FIH-1 in vivo increased Notch activity in the limbal epithelium, resulting in a more differentiated phenotype. microRNA-31 (miR-31) is an endogenous negative regulator of FIH-1 expression that results in keratinocyte differentiation, mediated by Notch activation. Ectopically expressing miR-31 in an undifferentiated corneal epithelial cell line promotes differentiation and recapitulates a corneal epithelium in a three-dimensional raft culture model. Our results define a previously unknown mechanism for keratinocyte fate decisions where Notch signaling potential is, in part, controlled through a miR-31/FIH-1 nexus.