Epidermal keratinocytes undergo terminal differentiation to form the stratum corneum, which consists of many layers of flat dead cells. These cells assemble an insoluble cornified envelope composed of specific proteins deposited on the intracellular surface of the cell membrane. The proteins are crosslinked by the action of transglutaminases, which catalyze the formation of isodipeptide bonds between the epsilon-NH2 side chain of a lysine residue and the gamma-amide side chain of a glutamine residue. Transglutaminases share a conserved, highly reactive cysteine in their active site. In this study, we found that nitric-oxide-releasing compounds inhibited cornified envelope formation in cultured keratinocytes and the in vitro crosslinking of loricrin, a natural substrate of transglutaminases. The NO donors inhibited transglutaminase catalytic activity in a dose-dependent manner, in both purified enzymes and keratinocyte extracts. Titration of thiol groups of transglutaminases indicated that NO regulates their enzymatic activity by chemically modifying a cysteine residue, possibly by S-nitrosylation. NO was also found to inhibit DNA-binding activity of activating protein 1 in keratinocyte nuclear extracts, and to interfere with the transactivation of activating protein 1 responsive genes such as transglutaminase 1, involucrin, and loricrin, whose expression is regulated during epidermal differentiation. In conclusion, we propose that NO may inhibit keratinocyte differentiation, acting both at transcriptional level (inactivation of activating protein 1) and at post-translational level (inhibition of transglutaminase activity).