To maintain epidermal homeostasis, the balance between keratinocyte proliferation and differentiation is tightly controlled. However, the molecular mechanisms underlying this balance remain unclear. In 3D organotypic coculture with mouse keratinocytes and fibroblasts, the thickness of stratified cell layers was prolonged, and growth arrest and terminal differentiation were delayed when PKCη-null keratinocytes were used. Re-expression of PKCη in PKCη-null keratinocytes restored stratified cell layer thickness, growth arrest and terminal differentiation. We show that in 3D cocultured PKCη-null keratinocytes, p27(Kip1) mRNA was downregulated, whereas JNK/c-Jun signaling was enhanced. Furthermore, inhibition of JNK/c-Jun signaling in PKCη-null keratinocytes led to upregulation of p27(Kip1) mRNA, and to thinner stratified cell layers. Collectively, our findings indicate that PKCη upregulates p27(Kip1) mRNA through suppression of JNK/c-Jun signaling. This results in promoting a proliferation to differentiation switch in keratinocytes.