The program of epidermal morphogenesis and differentiation changes dramatically during development of human fetal skin. Keratinocytes derived from fetal basal cells at early stages undergo only an incomplete keratinization and are eventually replaced by newly formed fetal keratinocytes that complete the terminal differentiation program and form the first stratum granulosum and stratum corneum. Once established, this program is reiterated throughout life, as the epidermis continually renews. To test the developmental potential of early fetal keratinocytes, we have cultured them in the physiologic skin equivalent (SE) system in the presence of varied retinoic acid (RA) concentrations and have compared them to neonatal keratinocytes cultured under the same conditions. The responses of fetal and neonatal SEs have been characterized by analysis of epidermal morphology, the presence and distribution of RA-responsive and differentiation-specific keratins and filaggrin, proliferation, and apoptosis. Our study shows that fetal basal keratinocytes already are programmed to form the granular layer and incomplete stratum corneum, even when isolated from a stage prior to formation of these layers. Fetal keratinocytes respond differently than neonatal keratinocytes to RA in terms of modulation of both epidermal morphology and expression of differentiation markers. Modulation of RA-responsive K1 and K19 occurs in both fetal SE and neonatal SE but the fetal keratinocyte responds at lower RA concentrations in the medium. In contrast, fetal keratinocytes appear to be less responsive than neonatal keratinocytes in terms of filaggrin expression and stratum corneum formation. These differences in the differentiation and RA response in vitro may be related to inherent stage-specific differences between fetal and neonatal keratinocytes in RA-signaling pathways including expression of the retinoic acid receptor, RARbeta. Furthermore, high rates of apoptosis in the fetal SE suggest that apoptosis is the default pathway that is taken in the absence of complete keratinocyte differentiation