In stratified epithelial tissues, homeostasis relies on the self-renewing capacity of stem cells located within the innermost basal layer. As basal cells become suprabasal, they lose proliferative potential and embark on a terminal differentiation programme^,. Here, we show that microRNA-203 is induced in the skin concomitantly with stratification and differentiation. By altering miR-203’s spatiotemporal expression in vivo, we show that miR-203 promotes epidermal differentiation by restricting proliferative potential and inducing cell-cycle exit. We identify p63 as one of the conserved targets of miR-203 across vertebrates. Notably, p63 is an essential regulator of stem-cell maintenance in stratified epithelial tissues^,,,,,. We show that miR-203 directly represses the expression of p63: it fails to switch off suprabasally when either Dicer1 or miR-203 is absent and it becomes repressed basally when miR-203 is prematurely expressed. Our findings suggest that miR-203 defines a molecular boundary between proliferative basal progenitors and terminally differentiating suprabasal cells, ensuring proper identity of neighbouring layers.