Distinguishing keratoacanthoma from squamous cell carcinoma is a persistent issue in pathology practice. Solitary keratoacanthoma is a self-limiting lesion as opposed to rather aggressive clinical behavior of squamous cell carcinoma. Several markers were studied to understand their biology and to separate these two lesions on a firm basis, but without much success. In this study, we plan to utilize recent markers such as telomerase activity and cyclooxygenase-2 (COX-2) along with more established marker p53 in understanding the biologic differences between keratoacanthoma and squamous cell carcinoma. We studied 17 well to moderately differentiated squamous cell carcinoma and 24 early proliferative phase keratoacanthoma by immunohistochemistry for the expression of p53 protein, COX-2 and telomerase activity. Higher telomerase activity was found in 11/17 squamous cell carcinoma (65%) compared to 4/24 (17%) of keratoacanthoma. Similarly, stronger expression of p53 and COX-2 was detected in 12 (71%) and 11 (65%) cases of squamous cell carcinoma compared to 2 (8%) and 2 (8%) cases of keratoacanthoma respectively. A highly significant 'P' value was obtained for telomerase activity (0.001), p53 (0.000), and COX-2 (0.001). Telomerase activity, COX-2, and p53 expression provide evidence that keratoacanthoma and squamous cell carcinoma are indeed distinct entities and also help in discriminating these two lesions, which closely resemble each other on conventional morphology. Although these markers present new insights into the biologic variation of keratoacanthoma and squamous cell carcinoma, they are of limited value for routine application in histological distinction of these two lesions. The differential expression of markers also explains the sustained proliferation observed in squamous cell carcinoma, compared to a shorter lifespan and involution in keratoacanthoma.