The ability of the olfactory epithelium (OE) to regenerate after injury is mediated by at least two populations of presumed stem cells-globose basal cells (GBCs) and horizontal basal cells (HBCs). Of the two, GBCs are molecularly and phenotypically analogous to the olfactory progenitors of the embryonic placode (OPPs). In contrast, HBCs are a reserve stem cell population that appears later in development and requires activation by severe epithelial damage before contributing to epithelial reconstitution. Neither HBC emergence nor the mechanism of activation after injury is understood. Here we show that the transcription factor p63 (Trp63), which is expressed selectively by adult HBCs, is required for HBC differentiation. The first evidence of HBC differentiation is the expression of p63 by cells that closely resemble embryonic OPPs and adult GBCs by morphology and expression of the transcription factors Sox2, Ascl1, and Hes1. HBC formation is delayed in Ascl1 knock-out OE and is completely abrogated in p63-null mice. Strikingly, other cell types of the OE form normally in the p63 knock-out OE. The role of p63 in HBC differentiation appears to be conserved in the regenerating rat OE, where HBCs disappear and then reappear after tissue lesion. Finally, p63 protein is downregulated in HBCs activated by lesion to become multipotent progenitor cells. Together, our data identify a novel mechanism for the generation of a reserve stem cell population and suggest that a p63-dependent molecular switch is responsible for activating reserve stem cells when they are needed.