Anandamide (AEA), a prominent member of the endogenous ligands of cannabinoid receptors (endocannabinoids), is known to affect several functions of brain and peripheral tissues. A potential role for AEA in skin pathophysiology has been proposed, yet its molecular basis remains unknown. Here we report unprecedented evidence that spontaneously immortalized human keratinocytes (HaCaT) and normal human epidermal keratinocytes (NHEK) have the biochemical machinery to bind and metabolize AEA, i.e. a functional type-1 cannabinoid receptor (CB1R), a selective AEA membrane transporter (AMT), an AEA-degrading fatty acid amide hydrolase (FAAH), and an AEA-synthesizing phospholipase D (PLD). We show that, unlike CB1R and PLD, the activity of AMT and the activity and expression of FAAH increase while the endogenous levels of AEA decrease in HaCaT and NHEK cells induced to differentiate in vitro by 12-O-tetradecanoylphorbol 13-acetate (TPA) plus calcium. We also show that exogenous AEA inhibits the formation of cornified envelopes, a hallmark of keratinocyte differentiation, in HaCaT and NHEK cells treated with TPA plus calcium, through a CB1R-dependent reduction of transglutaminase and protein kinase C activity. Moreover, transient expression in HaCaT cells of the chloramphenicol acetyltransferase reporter gene under control of the loricrin promoter, which contained a wild-type or mutated activating protein-1 (AP-1) site, showed that AEA inhibited AP-1 in a CB1R-dependent manner. Taken together, these data demonstrate that human keratinocytes partake in the peripheral endocannabinoid system and show a novel signaling mechanism of CB1 receptors, which may have important implications in epidermal differentiation and skin development.