Hedgehog (Hh) signaling is conserved from flies to humans and is indispensable in embryogenesis and adulthood. Patched (Ptc) encodes a receptor for Hh ligands and functions as a tumor suppressor. PTCH1 mutations in humans are found in basal cell carcinoma (BCC) and irradiated Ptc1(+/-) mice recapitulate this phenotype. However, due to embryonic lethality associated with the Ptc1 null mutation, its normal function in embryonic and adult skin remains unknown. Here we describe the epidermal phenotypes of a spontaneous and viable allele of Ptc1, Ptc1(mes), in which the C-terminal domain (CTD) is truncated. Ptc1(mes/mes) embryos display normal epidermal and hair follicle development. Postnatal Ptc1(mes/mes) skin displays severe basal cell layer hyperplasia and increased proliferation, while stratification of the suprabasal layers is mostly normal. Interestingly, truncation of the Ptc1 CTD did not result in skin tumors. However, long term labeling studies revealed a greater than three-fold increase in label-retaining cells in the interfollicular epidermis of Ptc1(mes/mes) adults, indicating possible expansion of the epidermal stem cell compartment. Increased expression of regulators of epidermal homeostasis, c-Myc and p63, was also observed in Ptc1(mes/mes) adult skin. These results suggest that the CTD of Ptc1 is involved in regulating epidermal homeostasis in mature skin.