The eta isoform of protein kinase C (PKC eta) is classified into the Ca2+-independent novel PKC subfamily and assigned to human chromosome 14 (14q22-23) and mouse chromosome 12 (12C3-D2). It is highly expressed in epithelial tissues especially in squamous epithelia. PKC eta is unique in that it is specifically activated by cholesterol sulfate and sulfatide, sulfated metabolites of cholesterol and cerebroside, respectively. PKC eta overexpression induces G1 arrest and differentiation in keratinocytes. PKC eta-induced differentiation is accompanied by the transcriptional activation of transglutaminase I, a key enzyme in squamous differentiation, and involucrin, a precursor of cornified envelopes. In keratinocytes, PKC eta associates with the cyclin E/cdk2/p21 complex and inhibits the cdk2-kinase activity, leading to G1 arrest. Cholesterol sulfate inhibits the promotional phase of skin carcinogenesis. Moreover, PKC eta-knockout mice show a much higher sensitivity to carcinogenesis, suggesting that PKC eta is negatively involved in tumor promotion through stimulation of keratinocyte differentiation. In addition to epithelial cells, recent studies revealed that PKC eta acts as a key regulator in early B-cell development. Although the functions of PKC eta in other cell types are not yet fully elucidated, available evidence indicates that this particular isoform plays crucial roles in the signaling of cell differentiation in a cell-type-specific manner.