Keratinocytes undergo significant structural remodeling during epidermal differentiation, including a broad transformation of the proteome coupled with a reduction in total cellular biomass. This suggests that intracellular digestion of proteins and organelles is necessary for keratinocyte differentiation. Here, we use both genetic and pharmacologic approaches to demonstrate that autophagy and lysosomal functions are required for keratinocyte differentiation in organotypic human skin. Lysosomal activity was required for mechanistic target of rapamycin signaling and mitochondrial oxidative metabolism. In turn, mitochondrial reactive oxygen species, produced as a natural byproduct of oxidative phosphorylation, were necessary for keratinocyte differentiation. Finally, treatment with exogenous reactive oxygen species rescued the differentiation defect in lysosome-inhibited keratinocytes. These findings highlight a reciprocal relationship between lysosomes and mitochondria, in which lysosomes support mitochondrial metabolism and the associated production of mitochondrial reactive oxygen species. The mitochondrial reactive oxygen species released to the cytoplasm in suprabasal keratinocytes triggers autophagy and lysosome-mediated degradation necessary for epidermal differentiation. As defective lysosome-dependent autophagy is associated with common skin diseases including psoriasis and atopic dermatitis, a better understanding of the role of lysosomes in epidermal homeostasis may guide future therapeutic strategies.