Cell-cycle exit and differentiation of suprabasal epidermal keratinocytes require nuclear IkappaB kinase alpha (IKKalpha), but not its protein kinase activity. IKKalpha also is a suppressor of squamous cell carcinoma (SCC), but its mode of action remains elusive. Postulating that IKKalpha may serve as a transcriptional regulator in keratinocytes, we searched for cell-cycle-related genes that could illuminate this function. IKKalpha was found to control several Myc antagonists, including Mad1, Mad2, and Ovol1, through the association with TGFbeta-regulated Smad2/3 transcription factors and is required for Smad3 recruitment to at least one of these targets. Surprisingly, Smad2/3-dependent Mad1 induction and keratinocyte differentiation are independent of Smad4, the almost universal coregulator of canonical TGFbeta signaling. IKKalpha also is needed for nuclear accumulation of activated Smad2/3 in the epidermis, and Smad2/3 are required for epidermal differentiation. We suggest that a TGFbeta-Smad2/3-IKKalpha axis is a critical Smad4-independent regulator of keratinocyte proliferation and differentiation.