Activity of protein kinase C depends on the interaction with polar head-groups of two membrane lipids, i.e., phosphatidylserine and diacylglycerol. In the present study, we demonstrated a novel activation mechanism of the eta isoform of protein kinase C (nPKC eta), which is predominantly expressed in epithelial tissues in close association with epithelial differentiation. We found that the nPKC eta was activated by cholesterol sulfate, a metabolite of cholesterol formed during squamous differentiation. This activation was greater than that by phosphatidylserine plus phorbol ester; the V-max for the activation by cholesterol sulfate was 3.6 times that by phosphatidylserine plus phorbol ester, while K(m)s were almost equal. In the presence of cholesterol sulfate, phorbol ester only weakly enhanced the activity of nPKC eta. Activation of nPKC eta by cholesterol sulfate was further demonstrated by autophosphorylation of the kinase molecule. However, the alpha and delta isoforms of protein kinase C were not activated by cholesterol sulfate. The present observation affords a new insight into a signal transduction pathway of squamous differentiation.