The cell surface protein Stem Cell Antigen-1 (Sca-1) marks stem or progenitor cells in several murine tissues and is normally upregulated during cancer development. Although the specific function of Sca-1 remains unknown, Sca-1 seems to play a role in proliferation, differentiation and cell migration in a number of tissues. In the skin epithelium, Sca-1 is highly expressed in the interfollicular epidermis but is absent in most compartments of the hair follicle; however, the function of Sca-1 in the skin has not been investigated. To explore the role of Sca-1 in normal and malignant skin development we generated transgenic mice that express Sca-1 in the hair follicle stem cells that are normally Sca-1 negative. Development of hair follicles and interfollicular epidermis appeared normal in Sca-1 mutant mice; however, follicular induction of Sca-1 expression in bulge region and isthmus stem cells reduced the overall yield of papillomas in a chemical carcinogenesis protocol. Despite that fewer papillomas developed in transgenic mice a higher proportion of the papillomas underwent malignant conversion. These findings suggest that overexpression of Sca-1 in the hair follicle stem cells contributes at different stages of tumour development. In early stages, overexpression of Sca-1 decreases tumour formation while at later stages overexpression of Sca-1 seems to drive tumours towards malignant progression.