BACKGROUND: Notch signaling involves ligand-receptor interactions through direct cell-cell contact. Multiple Notch receptors and ligands are expressed in the epidermis and hair follicles during embryonic development and the adult stage. Although Notch signaling plays an important role in regulating differentiation of the epidermis and hair follicles, it remains unclear how Notch signaling participates in late-stage epidermal differentiation and postnatal hair cycle homeostasis. METHODOLOGY AND PRINCIPAL FINDINGS: We applied Cre/loxP system to generate conditional gene targeted mice that allow inactivation of critical components of Notch signaling pathway in the skin. Rbpj, the core component of all four Notch receptors, and Pofut1, an essential factor for ligand-receptor interactions, were inactivated in hair follicle lineages and suprabasal layer of the epidermis using the Tgfb3-Cre mouse line. Rbpj conditional inactivation resulted in granular parakeratosis and reactive epidermal hyperplasia. Pofut1 conditional inactivation led to ultrastructural abnormalities in the granular layer and altered filaggrin processing in the epidermis, suggesting a perturbation of the granular layer differentiation. Disruption of Pofut1 in hair follicle lineages resulted in aberrant telogen morphology, a decrease of bulge stem cell markers, and a concomitant increase of K14-positive keratinocytes in the isthmus of mutant hair follicles. Pofut1-deficent hair follicles displayed a delay in anagen re-entry and dysregulation of proliferation and apoptosis during the hair cycle transition. Moreover, increased DNA double stand breaks were detected in Pofut1-deficent hair follicles, and real time PCR analyses on bulge keratinocytes isolated by FACS revealed an induction of DNA damage response and a paucity of DNA repair machinery in mutant bulge keratinocytes. SIGNIFICANCE: our data reveal a role for Notch signaling in regulating late-stage epidermal differentiation. Notch signaling is required for postnatal hair cycle homeostasis by maintaining proper proliferation and differentiation of hair follicle stem cells.