The small GTPase Rac1 is crucial for maintaining stem cells (SCs) in mammalian epidermis, and Rac1 activation leads to SC expansion. Loss or inhibition of Rac1 correlates with decreased frequency of skin cancer formation in a chemical carcinogenesis model. Here, we have addressed whether Rac1 activation would enhance carcinogenesis and result in tumor progression. We used K14ΔNLef1 mice, a model for differentiated sebaceous adenomas (SAs), and activated Rac1 in an epidermis-specific manner (K14L61Rac1). Surprisingly, Rac1 activation did not change the incidence and frequency of sebaceous tumors. However, tumors, which occurred exclusively in K14ΔNLef1/K14L61Rac1 double-transgenic mice, were poorly differentiated resembling malignant sebaceous tumors and were termed sebaceous carcinoma-like tumors (SCLTs). Compared with SAs, SCLTs showed an aberrant pattern of cell proliferation, invasive growth and less abundant expression of sebocyte differentiation markers, including stearoyl-CoA desaturase-1 and adipophilin. Interestingly, the adnexal SC marker Lrig1 was upregulated in SCLTs, showing that active Rac1 leads to the accumulation of sebocyte precursors in the context of K14ΔNLef1-induced skin tumors. In a search for targets of Rac1, we found cancer progression-related proteins, Dhcr24/Seladin1 and Nuclear protein 1/P8, to be strongly regulated in SCLTs. At last, Rac1 and Dhcr24/Seladin1 were detected in human sebaceous tumors demonstrating a potential high impact of our findings for human skin disease. This is the first study showing that Rac1 activity can lead to malignant progression of skin tumors.