Proper regulation of keratinocyte differentiation within the epidermis and follicular epithelium is essential for maintenance of epidermal barrier function and hair growth. The signaling intermediates that regulate the morphological and genetic changes associated with epidermal and follicular differentiation remain poorly understood. We tested the hypothesis that reactive oxygen species (ROS) generated by mitochondria are an important regulator of epidermal differentiation by generating mice with a keratinocyte-specific deficiency in mitochondrial transcription factor A (TFAM), which is required for the transcription of mitochondrial genes encoding electron transport chain subunits. Ablation of TFAM in keratinocytes impaired epidermal differentiation and hair follicle growth and resulted in death 2 weeks after birth. TFAM-deficient keratinocytes failed to generate mitochondria-derived ROS, a deficiency that prevented the transmission of Notch and β-catenin signals essential for epidermal differentiation and hair follicle development, respectively. In vitro keratinocyte differentiation was inhibited in the presence of antioxidants, and the decreased differentiation marker abundance in TFAM-deficient keratinocytes was partly rescued by application of exogenous hydrogen peroxide. These findings indicate that mitochondria-generated ROS are critical mediators of cellular differentiation and tissue morphogenesis.