CGI-58 is the causative molecule underlying Dorfman-Chanarin syndrome, a neutral lipid storage disease exhibiting apparent clinical features of ichthyosis. CGI-58, associated with triacylglycerol hydrolysis, has an alpha/beta-hydrolase fold and is also known as the alpha/beta-hydrolase domain-containing protein 5. The purpose of this study was to elucidate the function of CGI-58 and the pathogenic mechanisms of ichthyosis in Dorfman-Chanarin syndrome. Using an anti-CGI-58 antibody, we found CGI-58 to be expressed in the upper epidermis, predominantly in the granular layer cells, as well as in neurons and hepatocytes. Immunoelectron microscopy revealed that CGI-58 was also localized to the lamellar granules (LGs), which are lipid transport and secretion granules found in keratinocytes. CGI-58 expression was markedly reduced in the epidermis of patients with harlequin ichthyosis, demonstrating defective LG formation. In cultured keratinocytes, CGI-58 expression was mildly up-regulated under high Ca(2+) conditions and markedly up-regulated in three-dimensional, organotypic cultures. In the developing human epidermis, CGI-58 immunostaining was observed at an estimated gestational age of 49 days, and CGI-58 mRNA expression was up-regulated concomitantly with both epidermal stratification and keratinocyte differentiation. CGI-58 knockdown reduced expression of keratinocyte differentiation/keratinization markers in cultured human keratinocytes. Our results indicate that CGI-58 is expressed and packaged into LGs during keratinization and likely plays crucial role(s) in keratinocyte differentiation and LG lipid metabolism, contributing to skin lipid barrier formation.