Homozygosity for Cst6 null alleles causes the phenotype of the ichq mouse, which is a model for human harlequin ichthyosis (OMIM 242500), a genetically heterogeneous group of keratinization disorders. Here we report evidence for the mechanism by which deficiency of the cysteine protease inhibitor cystatin M/E (the Cst6 gene product) leads to disturbed cornification, impaired barrier function and dehydration. Absence of cystatin M/E causes unrestricted activity of its target protease legumain in hair follicles and epidermis, which is the exact location where cystatin M/E is normally expressed. Analysis of stratum corneum proteins revealed a strong decrease of soluble loricrin monomers in skin extracts of ichq mice, although normal levels of loricrin were present in the stratum granulosum and stratum corneum of ichq mice, as shown by immunohistochemistry. This suggested a premature or enhanced crosslinking of loricrin monomers in ichq mice by transglutaminase 3 (TGase 3). In these mice, we indeed found strongly increased levels of TGase 3 that was processed into its activated 30 and 47 kDa subunits, compared to wild-type mice. This study shows that cystatin M/E and legumain form a functional dyad in epidermis in vivo. Disturbance of this protease-antiprotease balance causes increased enzyme activity of TGase 3 that could explain the observed abnormal cornification.