As epidermal keratinocytes differentiate, they synthesize lipids, much of which are packaged into small organelles called lamellar granules, Acetate from the circulation serves as the principal carbon source for epidermal lipid synthesis, and the required energy is produced primarily by glycolysis with reduction of the resulting pyruvate to lactate. Late in the differentiation program, the contents of the lamellar granules are extruded into the extracellular spaces, Lipases, also delivered to the intercellular spaces via the lamellar granules, completely break down the remaining phospholipids and deglycosylate the glycolipids. Ceramides, cholesterol and fatty acids remain as the principal lipids in the stratum corneum. The modification of the lipid initially extruded from the lamellar granules is accompanied by a transformation from small, flattened vesicles to broad multilamellar lipid sheets which fill most of the intercellular spaces of the stratum corneum, and it is this intercellular lipid that provides the epidermal permeability barrier, Knowledge of the molecular events underlying formation and function of the permeability barrier can both improve our understanding of the normal protective role of the barrier and could be useful in design of transdermal drug delivery systems.