In adult tissue, stem and progenitor cells must tightly regulate the balance between proliferation and differentiation to sustain homeostasis. How this exquisite balance is achieved is an area of active investigation. Here, we show that epidermal genes, including ~30% of induced differentiation genes already contain stalled Pol II at the promoters in epidermal stem and progenitor cells which is then released into productive transcription elongation upon differentiation. Central to this process are SPT6 and PAF1 which are necessary for the elongation of these differentiation genes. Upon SPT6 or PAF1 depletion there is a loss of human skin differentiation and stratification. Unexpectedly, loss of SPT6 also causes the spontaneous transdifferentiation of epidermal cells into an intestinal-like phenotype due to the stalled transcription of the master regulator of epidermal fate P63. Our findings suggest that control of transcription elongation through SPT6 plays a prominent role in adult somatic tissue differentiation and the inhibition of alternative cell fate choices.