The isoprenoids farnesol and juvenile hormone III (JH), metabolites of the cholesterol biosynthetic pathway, have been shown to stimulate fetal epidermal development in rodents. In this study we determined whether this effect might be attributed to a direct induction of keratinocytes differentiation and examined the mechanisms responsible for these effects. Rates of cornified envelope formation, a marker of keratinocyte terminal differentiation, as well as protein and mRNA levels of two proteins required for cornified envelope formation, involucrin (INV) and transglutaminase, increased 2- to 3-fold in normal human keratinocytes (NHK) treated with either farnesol or JH, even at low calcium concentrations (0.03 mM), which otherwise inhibit differentiation. In contrast, neither cholesterol nor mevalonate affected INV or transglutaminase mRNA levels. Effects of farnesol and JH on INV and transglutaminase mRNA levels were additive with high calcium concentrations (1.2 mM) that independently stimulate keratinocyte differentiation. In contrast, keratinocyte DNA synthesis was inhibited by these compounds. Both farnesol and JH stimulated INV and transglutaminase promoter activity, suggesting regulation at the transcriptional level. A series of truncation and deletion experiments revealed a farnesol-responsive region (-2452 to -1880 base pairs (bp)) in the INV gene. This region contained an AP-1 site. A single base pair mutation of the AP-1 site at -2116 to -2110 bp abolished farnesol responsiveness, identical to effects by peroxisome proliferator-activated receptor (PPARalpha) activators. Farnesoid X-activated receptor mRNA was not detected in NHK, but farnesol treatment increased activities of both a PPAR response element and PPARalpha mRNA levels in NHK. Furthermore, the increase in PPRE activity by farnesol was dependent upon PPARalpha in CV-1 cells. Finally, topical applications of farnesol increased mRNA and protein levels of the differentiation-specific genes, profilaggrin and loricrin, determined by immunohistochemistry and in situ hybridization, in wild-type but not in PPARalpha-/- murine epidermis. These findings suggest a novel role for selected isoprenoid cholesterol intermediates in the regulation of differentiation-specific gene transcription and a convergence of PPARalpha with the cholesterol synthetic pathway.