In this study we have investigated hyaluronan (HA)-CD44 interaction with protein kinase N-␥ (PKN␥), a small GTPase (Rac1)-activated serine/threonine kinase in human keratinocytes. By using a variety of biochemical and molecular biological techniques, we have determined that CD44 and PKN␥ kinase (molecular mass ϳ120 kDa) are physically linked in vivo. The binding of HA to keratinocytes promotes PKN␥ kinase recruitment into a complex with CD44 and subsequently stimulates Rac1-mediated PKN␥ kinase activity. The Rac1-activated PKN␥ in turn increases threonine (but not serine) phosphorylation of phospholipase C (PLC) ␥1 and upregulates PLC␥1 activity leading to the onset of intracellular Ca 2؉ mobilization. HA/CD44-activated Rac1-PKN␥ also phosphorylates the cytoskeletal protein, cortactin, at serine/threonine residues. The phosphorylation of cortactin by Rac1-PKN␥ attenuates its ability to cross-link filamentous actin in vitro. Further analyses indicate that the N-terminal antiparallel coiled-coil (ACC) domains of PKN␥ interact directly with Rac1 in a GTP-dependent manner. The binding of HA to CD44 induces PKN␥ association with endogenous Rac1 and its activity in keratinocytes. Transfection of keratinocytes with PKN␥-ACCcDNA reduces HA-mediated recruitment of endogenous Rac1 to PKN␥ and blocks PKN␥ activity. These findings suggest that the PKN␥-ACC fragment acts as a potent competitive inhibitor of endogenous Rac1 binding to PKN␥ in vivo. Most important, the PKN␥-ACC fragment functions as a strong dominant-negative mutant that effectively inhibits HA/CD44-mediated PKN␥ phosphorylation of PLC␥1 and cortactin as well as keratinocyte signaling (e.g. Ca 2؉ mobilization and cortactin-actin binding) and cellular functioning (e.g. cell-cell adhesion and differentiation). Taken together, these findings strongly suggest that hyaluronan-CD44 interaction with Rac1-PKN␥ plays a pivotal role in PLC␥1-regulated Ca 2؉ signaling and cortactin-cytoskeleton function required for keratinocyte cell-cell adhesion and differentiation.