Transcription factors ensure skin homeostasis via tight regulation of distinct resident stem cells. Here we report that JunB, a member of the AP-1 transcription factor family, regulates epidermal stem cells and sebaceous glands through balancing proliferation and differentiation of progenitors and by suppressing lineage infidelity. JunB deficiency in basal progenitors results in a dermatitis-like syndrome resembling seborrheic dermatitis harboring structurally and functionally impaired sebaceous glands with a globally altered lipid profile. A fate switch occurs in a subset of JunB deficient epidermal progenitors during wound healing resulting in de novo formation of sebaceous glands. Dysregulated Notch signaling is identified to be causal for this phenotype. In fact, pharmacological inhibition of Notch signaling can efficiently restore the lineage drift, impaired epidermal differentiation and disrupted barrier function in JunB conditional knockout mice. These findings define an unprecedented role for JunB in epidermal-pilosebaceous stem cell homeostasis and its pathology.