Notch proteins are important in binary cell-fate decisions and inhibiting differentiation in many developmental systems1, and aberrant Notch signaling is associated with tumorigenesis2-5. The role of Notch signaling in mammalian skin is less well characterized and is mainly based on in vitro studies, which suggest that Notch signaling induces differentiation in mammalian skin6,7. Conventional gene targeting is not applicable to establishing the role of Notch receptors or ligands in the skin because Notch1-/- embryos die during gestation8-12. Therefore, we used a tissue-specific inducible gene-targeting approach to study the physiological role of the Notch1 receptor in the mouse epidermis and the corneal epithelium of adult mice. Unexpectedly, ablation of Notch1 results in epidermal and corneal hyperplasia followed by the development of skin tumors and facilitated chemical-induced skin carcino-genesis. Notch1 deficiency in skin and in primary keratinocytes results in increased and sustained expression of Gli2, causing the development of basal-cell carcinoma-like tumors. Furthermore, Notch1 inactivation in the epidermis results in derepressed β-catenin signaling in cells that should normally undergo differentiation. Enhanced β-catenin signaling can be reversed by re-introduction of a dominant active form of the Notch1 receptor. This leads to a reduction in the signaling-competent pool of β-catenin, indicating that Notch1 can inhibit β-catenin-mediated signaling. Our results indicate that Notch1 functions as a tumor-suppressor gene in mammalian skin.