The advent of organotypic skin models advanced the understanding of complex mechanisms of keratinocyte differentiation. However, these models are limited by both availability of primary keratinocytes and donor variability. Keratinocytes derived from cultured hair follicles and interfollicular epidermis were immortalized by ectopic expression of SV40 and hTERT. The generated keratinocyte cell lines differentiated into stratified epidermis with well-defined stratum granulosum and stratum corneum in organotypic human skin models. They behaved comparable to primary keratinocytes regarding the expression of differentiation-associated proteins, cell junction components and proteins associated with cornification and formed a barrier against biotin diffusion. Mechanistically, we found that SV40 large T-antigen expression, accompanied by a strong p53 accumulation, was only detectable in the basal layer of the in vitro reconstructed epidermis. Inhibition of DNA-methylation resulted in expression of SV40 large T-antigen also in the suprabasal epidermal layers and led to incomplete differentiation of keratinocyte cell lines. Our study demonstrates the generation of keratinocyte cell lines which are able to fully differentiate in an organotypic skin model. Since hair follicles, as source for keratinocytes, can be obtained by minimally invasive procedures, our approach enables the generation of cell lines also from individuals not available for skin biopsies.