Basal cell carcinoma (BCC) of the skin represents the most common malignancy in humans. MicroRNAs (miRNAs), small regulatory RNAs with pleiotropic function, are commonly misregulated in cancer. Here we identify miR-203, a miRNA abundantly and preferentially expressed in skin, to be downregulated in BCCs. We show that activation of the Hedgehog (HH) pathway, critically involved in the pathogenesis of BCCs, as well as the EGFR/MEK/ERK/c-JUN signaling pathway suppresses miR-203. We identify c-JUN, a key effector of the HH pathway, as a novel direct target for miR-203 in vivo. Further supporting the role of miR-203 as a tumor suppressor, in vivo delivery of miR-203 mimics in a BCC mouse model results in the reduction of tumor growth. Our results identify a regulatory circuit involving miR-203 and c-JUN, which provides functional control over basal cell proliferation and differentiation. We propose that miR-203 functions as a 'bona fide' tumor suppressor in BCC, whose suppressed expression contributes to oncogenic transformation via derepression of multiple stemness- and proliferation-related genes, and its overexpression could be of therapeutic value.