Profilaggrin is a large epidermal polyprotein that is proteolytically processed during keratinocyte differentiation to release multiple filaggrin monomer units as well as a calcium-binding regulatory NH₂-terminal filaggrin S-100 protein. We show that epidermal deficiency of the transmembrane serine protease Matriptase/MT-SP1 perturbs lipid matrix formation, cornified envelope morphogenesis, and stratum corneum desquamation. Surprisingly, proteomic analysis of Matriptase/MT-SP1–deficient epidermis revealed the selective loss of both proteolytically processed filaggrin monomer units and the NH₂-terminal filaggrin S-100 regulatory protein. This was associated with a profound accumulation of profilaggrin and aberrant profilaggrin-processing products in the stratum corneum. The data identify keratinocyte Matriptase/MT-SP1 as an essential component of the profilaggrin-processing pathway and a key regulator of terminal epidermal differentiation.