Previous in vitro studies have shown CD44 isoforms containing the alternatively spliced exon v3 (CD44v3) to be modified with heparan sulphate (HS) and to bind HS‐binding basic fibroblast growth factor (bFGF). Here, we demonstrate that exogenously added bFGF is also bound in vivo by CD44v3‐positive keratinocytes in normal skin and by tumour cells in basal cell carcinoma and squamous cell carcinoma (SCC), two skin cancers of keratinocyte origin. bFGF binding and CD44v3 expression were colocalized in cultured human normal keratinocytes (HNK) and on the SCC cell line A431. By contrast, benign or malignant tumours of melanocyte origin failed to express CD44v3 and bound no bFGF. The bFGF binding to normal or transformed keratinocytes in vivo and in vitro was dependent on HS modification, as it was completely eliminated by pretreatment with heparitinase or by blocking with free heparin, whereas chondroitinase had no effect. In addition, specific removal of CD44v3 by antibody‐induced shedding also diminished bFGF binding to keratinocytes. Furthermore, bFGF stimulated the proliferation of CD44v3‐positive HNK and A431 in a dose‐dependent fashion. This bFGF effect was again completely abolished by heparitinase or free heparin, but not by chondroitinase. In aggregate, our results suggest that a function of HS‐modified CD44 isoforms such as CD44v3 in skin is to present the HS‐binding growth factor bFGF, thereby stimulating the proliferation of normal or transformed keratinocytes.