The homeostasis of both cornea and hair follicles depends on a constant supply of progeny cells produced by populations of keratin (K) 14-expressing stem cells localized in specific niches. To investigate the potential role of Co-factors of LIM domains (Clims) in epithelial tissues, we generated transgenic mice expressing a dominant-negative Clim molecule (DN-Clim) under the control of the K14 promoter. As expected, the K14 promoter directed high level expression of the transgene to the basal cells of cornea and epidermis, as well as the outer root sheath of hair follicles. In corneal epithelium, the transgene expression causes decreased expression of adhesion molecule BP180 and defective hemidesmosomes, leading to detachment of corneal epithelium from the underlying stroma, which in turn causes blisters, wounds and an inflammatory response. After a period of epithelial thinning, the corneal epithelium undergoes differentiation to an epidermis-like structure. The K14-DN-Clim mice also develop progressive hair loss due to dysfunctional hair follicles that fail to generate hair shafts. The number of hair follicle stem cells is decreased by at least 60% in K14-DN-Clim mice, indicating that Clims are required for hair follicle stem cell maintenance. In addition, Clim2 interacts with Lhx2 in vivo, suggesting that Clim2 is an essential co-factor for the LIM homeodomain factor Lhx2, which was previously shown to play a role in hair follicle stem cell maintenance. Together, these data indicate that Clim proteins play important roles in the homeostasis of corneal epithelium and hair follicles.