This study demonstrates that adipose‐derived stem cells from debrided skin (dsASCs) of burn patients can be isolated in sufficient quantities and differentiated into cytokeratin‐expressing cells by treating them with all‐trans retinoic acid (ATRA) and the peroxisome proliferator‐activated receptor‐α (PPARα) specific activator fenofibrate. Differentiation of dsASCs with ATRA and a combination of growth factors induced expression of simple epithelial markers (KRT7, KRT8, KRT18, and KRT19), along with low levels of stratified epithelial markers (KRT5, KRT10, KRT13, and KRT14). We have optimized a condition to induce dsASCs differentiation to epithelial cells by treatment with ATRA and fenofibrate alone. Real‐time polymerase chain reaction analysis showed a significant increase in transcript levels (>75‐fold) for basal (KRT5 and KRT14), suprabasal (KRT10), and cornified envelope markers (involucrin [IVL] and Loricrin [LOR]) with this treatment. Expression of the proteins encoded by these transcripts was confirmed by immunocytochemical analysis. Further, we show that dsASCs differentiated to a skin epithelial cell phenotype through activation of nuclear hormone receptors PPARα and RXRγ. Collectively this study shows that dsASCs can be differentiated to skin epithelial cells, without the requirement for exogenous growth factors. This differentiation protocol using dsASCs in combination with an appropriate biocompatible scaffold can be adapted to develop epithelial skin substitute for burn wound treatment.