Epidermal stem cells (ESCs) are essential not only for tissue homeostasis but also for skin to respond to insults, but the mechanisms of stem cell regulation are unknown. To investigate the function of Rac1 in ESC development, we introduced either the dominant negative isoform or constitutively the active mutant of Rac1 in cultured human ESCs by using a retroviral vector and then analyzed the consequences. Upon activation, Rac1 increased surface alpha6/beta1 integrin levels and promoted colony forming efficiency of ESCs. Conversely, dominant negative Rac1 caused a progressive reduction in growth rate, an inhibition of adhesiveness and a marked stimulation of terminal differentiation, without any effect on the cell cycle. These results were consistent with the role of Rac1 in determining the fate of ESCs by controlling their exit from the stem cell compartment. Our results reveal a novel biological role for Rac1 and provide new insights into the mechanism regulating ESCs.