Lysosomal cysteine proteinases of the papain family are involved in lysosomal bulk proteolysis, major histocompatibility complex class II mediated antigen presentation, prohormone processing, and extracellular matrix remodeling. Cathepsin L (CTSL) is a ubiquitously expressed major representative of the papain-like family of cysteine proteinases. To investigate CTSL in vivo functions, the gene was inactivated by gene targeting in embryonic stem cells. CTSL-deficient mice develop periodic hair loss and epidermal hyperplasia, acanthosis, and hyperkeratosis. The hair loss is due to alterations of hair follicle morphogenesis and cycling, dilatation of hair follicle canals, and disturbed club hair formation. Hyperproliferation of hair follicle epithelial cells and basal epidermal keratinocytes-both of ectodermal origin-are the primary characteristics underlying the mutant phenotype. Pathological inflammatory responses have been excluded as a putative cause of the skin and hair disorder. The phenotype of CTSL-deficient mice is reminiscent of the spontaneous mouse mutant furless (fs). Analyses of the ctsl gene of fs mice revealed a G149R mutation inactivating the proteinase activity. CTSL is the first lysosomal proteinase shown to be essential for epidermal homeostasis and regular hair follicle morphogenesis and cycling.