The extracellular bilayers which mediate the epidermal permeability barrier are enriched in ceramides, free fatty acids, and cholesterol. Yet, the epidermal lamellar body, the source of these lipids, is enriched in a more polar mixture; i.e., glucosylceramides and phospholipids, which it delivers to the stratum corneum (SC) interstices. Whereas the extracellular processing of glucosylceramides to ceramides has been shown to be required for barrier homeostasis, the requirement for phospholipid degradation to free fatty acids is not yet established. In this study, we ascertained that topical applications of two chemically unrelated inhibitors of secretory phospholipase A2 (PLA2), bromphenacyl bromide and MJ-33, produced a progressive perturbation in barrier function in intact murine skin, first appearing at 5 d, preceded by the development of epidermal hyperplasia. Moreover, the defect in barrier homeostasis could be reversed by topical co-applications of the nonessential fatty acid, and of palmitic acid, but not by linoleic acid, both products of phospholipid catabolism. Furthermore, the barrier abnormality was accompanied by a reduction in free fatty acid levels in the stratum corneum, while phospholipid levels remained unchanged. These biochemical alterations were accompanied by the appearance of immature, incompletely processed lamellar body-derived membranes in the SC interstices, and depletion of histochemically detectable neutral lipid. Both the abnormalities and the epidermal hyperplasia were reversed by co-applications of palmitic acid (but not linoleic acid) with either inhibitor. These results demonstrate that processing of phospholipids to nonessential free fatty acids, by a yet-to-be-identified extracellular phospholipase, is required for the maintenance of barrier homeostasis in intact skin. Furthermore, our studies show that the barrier abnormalities induced by the PLA2 inhibitors are due to a failure to generate free fatty acids rather than to phospholipid accumulation.