The control of cell fate is critical to homeostasis and cancer. Cell cycle cdk inhibitor p21CIP1 has a central and paradoxical role in the regulatory crossroads leading to senescence, apoptosis, or differentiation. p21 is an essential target of tumor suppressor p53, but it also is regulated independently. In squamous self-renewal epithelia continuously exposed to mutagenesis, p21 controls cell fate by mechanisms still intriguing. We previously identified a novel epidermoid DNA damage-differentiation response. We here show that p21 intervenes in the mitosis block that is required for the squamous differentiation response to cell cycle deregulation and replication stress. The inactivation of endogenous p21 in human primary keratinocytes alleviated the differentiation response to oncogenic loss of p53 or overexpression of the DNA replication major regulator Cyclin E. The bypass of p21-induced mitotic block involving upregulation of Cyclin B allowed DNA damaged cells to escape differentiation and continue to proliferate. In addition, loss of p21 drove keratinocytes from differentiation to apoptosis upon moderate UV irradiation. The results show that p21 is required to drive keratinocytes towards differentiation in response to genomic stress and shed light into its dual and paradoxical role in carcinogenesis.