Aquaporin-3 (AQP3) is a water and glycerol channel expressed in epidermal keratinocytes. Despite many studies, controversy remains about the role of AQP3 in keratinocyte differentiation. Previously, our laboratory has shown co-localization of AQP3 and phospholipase D2 (PLD2) in caveolin-rich membrane microdomains. We hypothesized that AQP3 transports glycerol and "funnels" this primary alcohol to PLD2 to form a pro-differentiative signal, such that the action of AQP3 to induce differentiation should require PLD2. To test this idea, we re-expressed AQP3 in mouse keratinocytes derived from AQP3-knockout mice. The re-expression of AQP3, which increased [3H]glycerol uptake, also induced mRNA and protein expression of epidermal differentiation markers such as keratin 1, keratin 10, and loricrin, with or without the induction of differentiation by an elevated extracellular calcium concentration. Re-expression of AQP3 had no effect on the expression of the proliferation markers keratin 5 and cyclin D1. Furthermore, a selective inhibitor of PLD2, CAY10594, and a lipase-dead (LD) PLD2 mutant, but not a LD PLD1 mutant, significantly inhibited AQP3 re-expression-induced differentiation marker expression with calcium elevation, suggesting a role for PLD2 in this process. Thus, our results indicate that AQP3 has a pro-differentiative role in epidermal keratinocytes and that PLD2 activity is necessary for this effect.