Survival in a terrestrial, dry environment necessitates a permeability barrier for regulated permeation of water and electrolytes in the cornified layer of the skin (the stratum corneum) to minimize desiccation of the body. This barrier is formed during cornification and involves a cross-linking of corneocyte proteins as well as an extensive remodeling of lipids. The cleavage of precursor lipids from lamellar bodies by various hydrolytic enzymes generates ceramides, cholesterol, and non-esterified fatty acids for the extracellular lipid lamellae in the stratum corneum. However, the important role of epidermal triacylglycerol (TAG) metabolism during formation of a functional permeability barrier in the skin was only recently discovered. Humans with mutations in the ABHD5/CGI-58 (α/β hydrolase domain containing protein 5, also known as comparative gene identification-58, CGI-58) gene suffer from a defect in TAG catabolism that causes neutral lipid storage disease with ichthyosis. In addition, mice with deficiencies in genes involved in TAG catabolism (Abhd5/Cgi-58 knock-out mice) or TAG synthesis (acyl-CoA:diacylglycerol acyltransferase-2, Dgat2 knock-out mice) also develop severe skin permeability barrier dysfunctions and die soon after birth due to increased dehydration. As a result of these defects in epidermal TAG metabolism, humans and mice lack ω-(O)-acylceramides, which leads to malformation of the cornified lipid envelope of the skin. In healthy skin, this epidermal structure provides an interface for the linkage of lamellar membranes with corneocyte proteins to maintain permeability barrier homeostasis. This review focuses on recent advances in the understanding of biochemical mechanisms involved in epidermal neutral lipid metabolism and the generation of a functional skin permeability barrier. This article is part of a Special Issue entitled The Important Role of Lipids in the Epidermis and their Role in the Formation and Maintenance of the Cutaneous Barrier. Guest Editors: Kenneth R. Feingold and Peter Elias.