We recently identified Grainyhead-like 2 (GRHL2), a mammalian homolog of Grainyhead in Drosophila, to be a novel transcription factor that regulates hTERT gene expression and enhances proliferation of normal human epidermal keratinocytes (NHEK). In the current study, we show that GRHL2 impairs keratinocyte differentiation through transcriptional inhibition of the genes clustered at the epidermal differentiation complex (EDC), located at chromosome 1q21. Gene expression profiling and subsequent in vitro assays revealed consistent downregulation of EDC genes, for example, IVL, KRT1, FLG, LCEs, and SPRRs, in NHEK expressing exogenous GRHL2. In vivo binding assay by chromatin immunoprecipitation revealed GRHL2 association at the promoter regions of its target genes, many of which belong to EDC. Exogenous GRHL2 expression also inhibited recruitment of histone demethylase Jmjd3 to the EDC gene promoters and enhanced the level of histone 3 Lys 27 trimethylation enrichment at these promoters. Survey of GRHL2 expression in human skin tissues demonstrated enhanced protein and mRNA levels in chronic skin lesions with impaired keratinocyte differentiation, for example, atopic dermatitis and psoriasis, compared with normal epidermis. These data indicate that GRHL2 impairs epidermal differentiation by inhibiting EDC gene expression through epigenetic mechanisms and support its role in the hyperproliferative skin diseases.