Carboxyl-terminal–binding protein-1 (CtBP1) is a transcriptional corepressor with multiple in vitro targets, but its in vivo functions are largely unknown. We generated keratinocyte-specific CtBP1 transgenic mice with a keratin-5 promoter (K5.CtBP1) to probe the pathological roles of CtBP1. At transgene expression levels comparable to endogenous CtBP1 in acute skin wounds, the K5.CtBP1 epidermis displayed hyperproliferation, loss of E-cadherin, and failed terminal differentiation. Known CtBP1 target genes associated with these processes, e.g., p21 Brca1, and E-cadherin, were downregulated in K5.CtBP1 skin. Surprisingly, K5.CtBP1 pups also exhibited a hair loss phenotype. We found that expression of the Distal-less 3 (Dlx3), a critical regulator of hair follicle differentiation and cycling, was decreased in K5.CtBP1 mice. Molecular studies revealed that CtBP1 directly suppressed Dlx3 transcription. Consistently, K5.CtBP1 mice displayed abnormal hair follicles with decreased expression of Dlx3 downstream targets Gata3 Hoxc13, and hair keratins. In summary, this CtBP1 transgenic model provides in vivo evidence for certain CtBP1 functions predicted from in vitro studies, reveals—to our knowledge—previously unreported functions and transcriptional activities of CtBP1 in the context of epithelial–mesenchymal interplay, and suggests that CtBP1 has a pathogenic role in hair follicle morphogenesis and differentiation