Basal stem cells fuel development, homeostasis, and regeneration of the epidermis. The proliferation and fate decisions of these cells are highly regulated by their microenvironment, including the basement membrane and underlying mesenchymal cells. Basal progenitors give rise to differentiated progeny that generate the epidermal barrier. Here, we present data that differentiated progeny also regulate the proliferation, differentiation, and migration of basal progenitor cells. Using two distinct mouse lines, we found that increasing contractility of differentiated cells resulted in non-cell-autonomous hyperproliferation of stem cells and prevented their commitment to a hair follicle lineage. This increased contractility also impaired movement of basal progenitors during hair placode morphogenesis and diminished migration of melanoblasts. These data suggest that intra-tissue tension regulates stem cell proliferation, fate decisions, and migration and that differentiated epidermal keratinocytes are a component of the stem cell niche that regulates development and homeostasis of the skin.