Productive infection by human papillomaviruses (HPVs) occurs only in differentiated squamous epithelial cells in papillomas, condylomata, and low grade intraepithelial neoplasias. Host DNA replication is reactivated in a fraction of terminally differentiated keratinocytes in benign human lesions and in organotypic raft cultures of primary human keratinocytes (PHKs) transduced with retroviruses expressing HPV-18 E7 oncogene from its native upstream regulatory region (URR). Thus the natural function of E7 protein, which inactivates pRB family proteins, is to induce host genes essential to support viral DNA replication in post-mitotic cells. Using this raft culture model system, we show that HPV-18 URR-E7 induces the universal cyclin-dependent kinase inhibitor p21cip1 protein in a fraction of differentiated PHKs. Induction is mediated by posttranscriptional mechanisms independent of p53. Double immunofluorescence studies demonstrate that, in raft cultures and in laryngeal papillomas, p21cip1 induction and reactivated host DNA synthesis take place in a mutually exclusive manner in PCNA-positive, differentiated keratinocytes. We suggest that p21cip1 induction effectively blocks unscheduled DNA synthesis reactivated by E7. These results begin to explain the inverse relationship between p21cip1 induction and HPV activities previously observed in a spectrum of benign lesions regardless of HPV types present.