In the epidermis proliferation of keratinocytes is restricted to the basal layer, which is in contact with the basement membrane, and cells undergo terminal differentiation as they move upwards through the suprabasal layers. In stratified cultures of human keratinocytes, upward migration is a consequence, not a cause, of terminal differentiation and occurs because keratinocytes become less adhesive to their substratum and to one another. Most keratinocytes can be induced to differentiate to completion by placing them in suspension in methylcellulose: within 12 h DNA synthesis is irreversibly inhibited and by 24 h most cells express involucrin (ref 4; P. A. Hall, J.C.A. and F.M.W., unpublished observations). Here we report that when fibronectin is added to the methylcellulose, keratinocytes still withdraw from the cell cycle, but induction of involucrin expression is largely inhibited. The effect of fibronectin is concentration- and time-dependent and is mediated by a receptor of the integrin family. These results provide an explanation for why overt terminal differentiation is normally restricted to suprabasal cells, whereas cell-cycle withdrawal occurs within the basal layer; they also have important implications for the mechanism of epidermal wound healing. Furthermore, our data show that the binding of an extracellular matrix protein to its receptor can regulate differentiated gene expression in the absence of changes in cell shape.