Cancer stem cells (CSCs) have been reported in various cancers, including in skin squamous-cell carcinoma (SCC). The molecular mechanisms regulating tumour initiation and stemness are still poorly characterized. Here we find that Sox2, a transcription factor expressed in various types of embryonic and adult stem cells, was the most upregulated transcription factor in the CSCs of squamous skin tumours in mice. SOX2 is absent in normal epidermis but begins to be expressed in the vast majority of mouse and human pre-neoplastic skin tumours, and continues to be expressed in a heterogeneous manner in invasive mouse and human SCCs. In contrast to other SCCs, in which SOX2 is frequently genetically amplified, the expression of SOX2 in mouse and human skin SCCs is transcriptionally regulated. Conditional deletion of Sox2 in the mouse epidermis markedly decreases skin tumour formation after chemical-induced carcinogenesis. Using green fluorescent protein (GFP) as a reporter of Sox2 transcriptional expression (SOX2-GFP knock-in mice), we showed that SOX2-expressing cells in invasive SCC are greatly enriched in tumour-propagating cells, which further increase upon serial transplantations. Lineage ablation of SOX2-expressing cells within primary benign and malignant SCCs leads to tumour regression, consistent with the critical role of SOX2-expressing cells in tumour maintenance. Conditional Sox2 deletion in pre-existing skin papilloma and SCC leads to tumour regression and decreases the ability of cancer cells to be propagated upon transplantation into immunodeficient mice, supporting the essential role of SOX2 in regulating CSC functions. Transcriptional profiling of SOX2-GFP-expressing CSCs and of tumour epithelial cells upon Sox2 deletion uncovered a gene network regulated by SOX2 in primary tumour cells in vivo. Chromatin immunoprecipitation identified several direct SOX2 target genes controlling tumour stemness, survival, proliferation, adhesion, invasion and paraneoplastic syndrome. We demonstrate that SOX2, by marking and regulating the functions of skin tumour-initiating cells and CSCs, establishes a continuum between tumour initiation and progression in primary skin tumours.