Basal stem cells fuel development, homeostasis, and regeneration of the epidermis. The proliferation and fate decisions of these cells are highly regulated by their microenvironment, including the basement membrane and underlying mesenchymal cells. Basal progenitors give rise to differentiated progeny that serve an essential role in generating the epidermal barrier. Here, we present data that differentiated progeny also regulate the proliferation, differentiation, and migration of basal progenitor cells. Using two distinct mouse lines, we found that increasing contractility of differentiated cells resulted in non-cell autonomous hyperproliferation of stem cells and prevented their commitment to a hair follicle lineage. These phenotypes were rescued by pharmacological inhibitors of contractility. Live-imaging revealed that increasing the contractility of differentiated cells resulted in stabilization of adherens junctions and impaired movement of basal progenitors during hair placode morphogenesis, as well as a defect in migration of melanoblasts. These data suggest that intra-tissue tension regulates stem cell proliferation, fate decisions and migration, similar to the known roles of extracellular matrix rigidity. Additionally, this work demonstrates that differentiated epidermal keratinocytes are a component of the stem cell niche that regulates development and homeostasis of the skin.