BACKGROUND: Psoriasis is a common inflammatory skin disease characterized by abnormal keratinocyte proliferation and differentiation, increased angiogenesis and inflammation. There is evidence that some keratinocyte differentiation events are controlled by changes in cell-cell adhesion. beta-catenin is a 94-kDa protein which has a dual function as a component of intercellular adherens junctions and also as a transcription factor as part of the Wnt signalling pathway. beta-catenin is not required for keratinocyte proliferation but has been shown to regulate keratinocyte stem cells and hair follicle morphogenesis. OBJECTIVES: To investigate the distribution and function of beta-catenin in involved psoriatic epidermis and in epidermal keratinocytes. METHODS: Biopsies were obtained from patients with psoriasis and from normal controls. The distribution of beta-catenin was investigated using antibodies to both total and unphosphorylated active beta-catenin. Luciferase assays were used to measure transcriptional activation of transglutaminase 1 (TGase 1) and involucrin and to investigate the functional role of beta-catenin in interfollicular keratinocytes. RESULTS: Increased nuclear beta-catenin was seen in lesional suprabasal psoriatic epidermis compared with uninvolved or normal skin. Increased active unphosphorylated beta-catenin was also detected within the differentiating compartment of involved psoriatic epidermis. Expression of TGase 1 overlapped with beta-catenin in suprabasal lesional psoriasis. The TGase 1 promoter was positively regulated by activated beta-catenin and by the glycogen synthase kinase binding protein, suggesting that beta-catenin and glycogen synthase kinase 3beta may regulate TGase 1 expression. CONCLUSIONS: This is the first report to convincingly demonstrate increased beta-catenin in involved psoriasis and to implicate beta-catenin in the regulation of TGase 1. This evidence suggests a role for beta-catenin signalling in regulating keratinocyte differentiation in interfollicular skin in addition to previously reported functions in stem cell fate determination, hair follicle regulation and skin tumorigenesis.