Terminal differentiation is a key element in the maintenance of tissue homeostasis in the epidermis. We show here that methotrexate (MTX) induces differentiation of human epidermal keratinocytes in vitro. MTX inhibits proliferation of keratinocytes and also induces several markers of differentiation: a change in cell morphology, a marked increase in cell size, an increase in the proportion of cells that express involucrin, and an increase in the amount of cornified envelope protein. These effects of MTX are dose- and exposure-time-dependent and become irreversible after 24 hr, approximately one population doubling time. These effects of MTX cannot be attributed to cytotoxicity since keratinocytes not only remain viable but also actively synthesize proteins. MTX causes reproducible changes in the SDS/PAGE profiles of newly synthesized proteins and, in particular, increases the amount of involucrin synthesis. Thymidine completely prevents these effects of MTX, suggesting that they are caused by a depletion of thymine deoxyribonucleotides. The effect of MTX on keratinocytes may provide a model for studying the relationship between deoxyribonucleotide metabolism and differentiation in normal cells. In addition, the ability of MTX to induce differentiation in keratinocytes suggests a mechanism to explain its therapeutic action in psoriasis.