During epithelial homeostasis, stem cells divide to produce progenitor cells, which not only proliferate to generate the cell mass but also respond to cellular signaling to transition from a proliferative state to a differentiation state. Such a transition involves functional alterations of transcriptional factors, yet the underlying molecular mechanisms are poorly understood. Recent studies have implicated Kruppel-like factors (KLFs) including KLF5 in the renewal and maintenance of stem/progenitor cells. Here we demonstrate that the pro-proliferative factor KLF5 becomes anti-proliferative upon TGFbeta-mediated acetylation in an in vitro model of epithelial homeostasis. In the HaCaT epidermal cell line treated with or without TGFbeta, we found that KLF5 was not only essential for cell proliferation, it was also indispensable for TGFbeta-induced anti-proliferation in these cells. KLF5 inhibited the expression of p15 (CDKN2B), a cell cycle inhibitor, without TGFbeta, but became a coactivator in TGFbeta-induced p15 expression in the same cells. Mechanistically, TGFbeta recruited acetylase p300 to acetylate KLF5, and acetylation in turn altered the binding of KLF5 to p15 promoter, resulting in the reversal of KLF5 function. These studies not only demonstrate that a basic transcription factor can be both pro-proliferation and anti-proliferation in epithelial homeostasis, they also present a unique mechanism for how transcriptional regulation changes during the transition from proliferation to inhibition of proliferation. Furthermore, they establish KLF5 as an essential cofactor for TGFbeta signaling.