The cornified layer is a compacted lattice of lipid-embedded corneocytes that provides an organism's barrier to the external environment. Cornification is the final differentiative step for epidermal keratinocytes and involves dramatic cell condensation before death. Using conditional gene deletion in mice, we identified the transcriptional repressor Blimp-1 (B lymphocyte-induced maturation protein-1) as an important regulator of keratinocyte transition from the granular to the cornified layer. More than 250 genes are misregulated in conditional knockout epidermis, including those encoding transcription factors, signal transduction components, proteinases, and enzymes involved in lipid metabolism. Steady-state mRNA and ChIP analyses of a subset of these genes provide evidence that nfat5, fos, prdm1, and dusp16 are novel direct targets of Blimp-1. Identifying nfat5 as a target of Blimp-1 repression indicates that cornification involves suppression of normal osmotic regulation in granular cells. Consistently, conditional knockout mice have delayed barrier formation as embryos, enlarged granular layer cells and corneocytes, and a morphologically abnormal cornified layer. These studies provide insight into cornification, identifying transcriptional regulatory circuitry and indicating the importance of blocking osmotic homeostasis.