TGFβ has both tumor suppressive and oncogenic roles in cancer development. We previously showed that SB431542 (SB), a small molecule inhibitor of the TGFβ type I receptor (ALK5) kinase, suppressed benign epidermal tumor formation but enhanced malignant conversion. Here, we show that SB treatment of primary K5rTA/tetORASV12G bitransgenic keratinocytes did not alter HRASV12G-induced keratinocyte hyperproliferation. However, continuous SB treatment significantly enhanced HRASV12G-induced cornified envelope formation and cell death linked to increased expression of enzymes transglutaminase (TGM) 1 and TGM3 and constituents of the cornified envelope small proline-rich protein (SPR) 1A and SPR2H. In contrast, TGFβ1 suppressed cornified envelope formation in HRASV12G keratinocytes. Similar results were obtained in HRASV12G transgenic mice treated topically with SB or by coexpressing TGFβ1 and HRASV12G in the epidermis. Despite significant cell death, SB-resistant HRASV12G keratinocytes repopulated the primary culture that had overcome HRas-induced senescence. These cells expressed reduced levels of p16^ink4a and were growth stimulated by SB but remained sensitive to a calcium-induced growth arrest. Together these results suggest that differential responsiveness to cornification may represent a mechanism by which pharmacologic blockade of TGFβ signaling can inhibit the outgrowth of preneoplastic lesions but may cause a more progressed phenotype in a separate keratinocyte population. Mol Cancer Res; 9(6); 746–56. ©2011 AACR.