We characterised wool traits, and skin gene expression profiles of fine wool Super Merino (SM) and coarse wool Small Tail Han (STH) sheep. SM sheep had a significantly higher total density of wool follicles, heavier fleeces, finer fibre diameter, and increased crimp frequency, staple length and wool grease (lanolin) production. We found 435 genes were expressed at significantly different levels in the skin of the two breeds (127 genes more highly in SM and 308 genes more highly in STH sheep). Classification of the genes more highly expressed in SM sheep revealed numerous lipid metabolic genes as well as genes encoding keratins, keratin-associated proteins, and wool follicle stem cell markers. In contrast, mammalian epidermal development complex genes and other genes associated with skin cornification and muscle function were more highly expressed in STH sheep. Genes identified in this study may be further evaluated for inclusion in breeding programs, or as targets for therapeutic or genetic interventions, aimed at altering wool quality or yield. Expression of the lipid metabolic genes in the skin of sheep may be used as a novel trait with the potential to alter the content or properties of lanolin or the fleece.