We have investigated the earliest events in commitment of human epidermal keratinocytes to terminal differentiation. Phosphorylated Akt and caspase activation were detected in cells exiting the basal layer of the epidermis. Activation of Akt by retroviral transduction of primary cultures of human keratinocytes resulted in an increase in abortive clones founded by transit amplifying cells, while inhibition of the upstream kinase, PI3-kinase, inhibited suspension-induced terminal differentiation. Caspase inhibition also blocked differentiation, the primary mediator being caspase 8. Caspase activation was initiated by 2 h in suspension, preceding the onset of expression of the terminal differentiation marker involucrin by several hours. Incubation of suspended cells with fibronectin or inhibition of PI3-kinase prevented caspase induction. At 2 h in suspension, keratinocytes that had become committed to terminal differentiation had increased side scatter, were 7-aminoactinomycin D (7-AAD) positive and annexin V negative; they exhibited loss of mitochondrial membrane potential and increased cardiolipin oxidation, but with no increase in reactive oxygen species. These properties indicate that the onset of terminal differentiation, while regulated by PI3-kinase and caspases, is not a classical apoptotic process.