Understanding keratinocyte stem cell regulation is important in understanding the pathogenesis of wound healing and nonmelanoma skin cancer. We previously used a sensitive and quantitative assay for in vitro keratinocyte colony formation and mapped the keratinocyte stem cell locus (Ksc1) on mouse chromosome 9. Examination of the candidate genes in this locus disclosed a sequence variant in the gene for bone morphogenetic protein 5 (Bmp5). In this report, we used a naturally occurring mouse with a null mutation in this gene to probe stem cell properties in mouse epidermis. We found that the mutant keratinocytes had a significant reduction in the size and number of clonogenic keratinocytes. The mutant mice had a 50% reduction in the number of label-retaining cells when compared with their littermates. Addition of exogenous Bmp5 protein increased the number and size of keratinocyte colonies in the mutant as well as their wild-type littermates. Surprisingly, the mutant mice showed at least a 2-fold increase in skin tumor susceptibility over their littermates. We conclude that a naturally occurring mutation in Bmp5 affects keratinocyte stem cell proliferation, and skin tumor susceptibility, and is a candidate stem cell regulatory gene in the Ksc1 locus.