Although p120-catenin regulates adherens junction (AJ) stability in cultured cells, genetic studies in lower eukaryotes have not revealed a role for this protein in vivo. Using conditional targeting in mice, we show that p120 null neonatal epidermis exhibits reduced intercellular AJ components but no overt disruption in barrier function or intercellular adhesion. As the mice age, however, they display epidermal hyperplasia and chronic inflammation, typified by hair degeneration and loss of body fat. Using skin engraftments and anti-inflammatory drugs, we show that these features are not attributable to reductions in junctional cadherins and catenins, but rather NFkB activation. Both in vivo and in vitro, p120 null epidermal cells activate nuclear NFkB, triggering a cascade of proinflammatory NFkB targets. Although the underlying mechanism is likely complex, we show that p120 affects NFkB activation and immune homeostasis in part through regulation of Rho GTPases. These findings provide important new insights into p120 function.