Although in vitro studies of embryonic stem cells have identified polycomb repressor complexes (PRCs) as key regulators of differentiation, it remains unclear as to how PRC-mediated mechanisms control fates of multipotent progenitors in developing tissues. Here, we show that an essential PRC component, Ezh2, is expressed in epidermal progenitors but diminishes concomitant with embryonic differentiation and with postnatal decline in proliferative activity. We show that Ezh2 controls proliferative potential of basal progenitors by repressing the Ink4A-Ink4B locus and tempers the developmental rate of differentiation by preventing premature recruitment of AP1 transcriptional activator to the structural genes that are required for epidermal differentiation. Together, our studies reveal that PRCs control epigenetic modifications temporally and spatially in tissue-restricted stem cells. They maintain their proliferative potential and globally repressing undesirable differentiation programs while selectively establishing a specific terminal differentiation program in a stepwise fashion.