Very little is known about the in vivo regulation of mammalian fatty acid chain elongation enzymes as well as the role of specific fatty acid chain length in cellular responses and developmental processes. Here, we report that the Elovl3 gene product, which belongs to a highly conserved family of microsomal enzymes involved in the formation of very long chain fatty acids, revealed a distinct expression in the skin that was restricted to the sebaceous glands and the epithelial cells of the hair follicles. By disruption of the Elovl3 gene by homologous recombination in mouse, we show that ELOVL3 participates in the formation of specific neutral lipids that are necessary for the function of the skin. The Elovl3-ablated mice displayed a sparse hair coat, the pilosebaceous system was hyperplastic, and the hair lipid content was disturbed with exceptionally high levels of eicosenoic acid (20:1). This was most prominent within the triglyceride fraction where fatty acids longer than 20 carbon atoms were almost undetectable. A functional consequence of this is that Elovl3-ablated mice exhibited a severe defect in water repulsion and increased trans-epidermal water loss.