Epidermal differentiation and stratification, crucial for barrier formation, are regulated by a complex interplay of transcription factors, including the evolutionarily conserved Grainyhead-like 3 (Grhl3/Get1); Grh/3-deleted mice exhibit impaired epidermal differentiation and decreased expression of multiple differentiation genes. To test whether Grhl3 regulates epidermal genes indirectly by controlling the expression of specific microRNAs (miRs), we performed miR profiling and identified 11 miRs that are differentially regulated in Grhl3-/- skin, one of which is miR-21, previously shown to be upregulated in diseased skin, including in psoriasis and squamous cell skin cancer. We found that miR-21 is normally expressed in the post-mitotic suprabasal layers of the epidermis, overlapping with Grhl3. The miR-21 promoter is bound and repressed by Grhl3 indicating that these two factors are involved in a regulatory loop maintaining homeostasis in the epidermis. Although miR-21 overexpression in normal keratinocytes had mild effects on the expression of several known miR-21 targets, an enhanced downregulation of the miR-21 tumor-related targets, including MSH2, was observed in Ras-transformed keratinocytes. The increased sensitivity of transformed keratinocytes to miR-21's effects occurs in part through downregulation of the RNA-binding protein DND1 during the transformation process. Additionally, we observed increased tumorigenesis in mice subcutaneously injected with transformed keratinocytes lacking Grhl3. These findings indicate that decreased Grhl3 expression contributes to tumor progression and upregulation of the oncomir miR-21 in squamous cell carcinoma of the skin.