The regulation of p53 protein synthesis and p53-mediated gene transactivation were evaluated in cultured mouse keratinocytes maintained as basal cells or induced to differentiate by Ca2+ > 0.1 mM. p53 protein half-life, p53 protein synthesis and the level of p53 mRNA decreased during terminal differentiation, as detected by immunoprecipitation with a panel of p53-specific antibodies and Northern blotting. Thus differentiating keratinocytes have lower levels of p53 protein. This decline is not observed following growth arrest alone, or in papilloma cell lines which do not terminally differentiate in response to Ca2+. In contrast, the ability of endogenous p53 to transactivate transcription from the PG13 CAT plasmid increased during differentiation in vitro. This change in activity cannot be explained by changes in p53 conformation or nuclear localization. Consistent with these findings, mRNA for the p53-mediated genes WAF1 and mdm-2 increased with Ca(2+)-induced differentiation in a time dependent manner, suggesting activation of p53 contributes to the differentiated phenotype. However, p53-null mice exhibit histologically normal skin and epidermal keratinocytes from these mice express the appropriate markers of differentiation and suppression of DNA synthesis in vitro when the [Ca2+] is > 0.1 mM. The observation that proliferating cells have higher levels of p53 protein which is less active for its function than differentiated cell types could have a consequence for the selection of p53 gene mutations during carcinogenesis, depending upon the stage of differentiation of the tumor cell type.