Because aryl hydrocarbon receptor (AhR) is a ligand-activated transcription factor, its nuclear translocation in response to ligands may be directly linked to transcriptional activation of target genes. We have investigated the biological significance of AhR from the perspective of its subcellular localization and revealed that AhR possesses a functional nuclear localization signal (NLS) as well as a nuclear export signal (NES) which controls the distribution of AhR between the cytoplasm and nucleus. The intracellular localization of AhR is regulated by phosphorylation of amino acid residues in the vicinity of the NLS and NES. In cell culture systems, cell density affects not only its intracellular distribution of AhR, but also its transactivation activity of the target genes such as transcriptional repressor Slug, which is important for the induction of epithelial-mesenchymal transitions. These effects of AhR observed in cultured cells are proposed to be reflected on the in vivo response such as morphogenesis and tumor formation. This review summarizes recent work on the control mechanism of AhR localization and progress in understanding the physiological role of AhR in the skin. We propose that AhR is involved in normal skin formation during fetal development as well as in pathological states such as epidermal wound healing and skin carcinogenesis.