The human transcriptome contains thousands of small open reading frames (sORFs) that have been largely overlooked because of their small size. Some of these sORFs code for bioactive small proteins, although none of them have been associated with the regulation of cell identity. Here, we show that TINCR lncRNA encodes pTINCR, an evolutionary conserved ubiquitin-like protein (UBL) with a SUMO interacting motif (SIM) that is expressed in many epithelia. We find that pTINCR binds to SUMO and modifies global cell SUMOylation. One of its main binding partners is CDC42, a Rho-GTPase critical for actin cytoskeleton remodeling and for epidermal differentiation. We show that pTINCR increases CDC42 SUMOylation and promotes its activation in a SIM-dependent manner. Indeed, by gain- and loss-of-function studies we demonstrate that pTINCR is a key regulator of epithelial cell differentiation in vitro and promotes epidermal differentiation in vivo. Consistent with its pro-differentiation role, pTINCR expression is lost in human cutaneous squamous cell carcinomas (cSCC), and its overexpression reduces malignancy in cSCC patient-derived xenografts (PDXs). Of note, we show that the tumor suppressor p53 upregulates TINCR and increases pTINCR protein levels. Moreover, the expression of TINCR in epithelial cancers correlates with better prognosis. Our results identify pTINCR as a novel regulator of epithelial differentiation with tumor suppressor activity. More generally, our findings suggest that the proteome encoded by previously assumed non-coding RNAs can indeed be a source of new regulators of cell identity relevant for cancer.