BACKGROUND: Squamous Cell Carcinoma (SCC) is a common skin malignancy arising from keratinocytes and can develop from Actinic Keratosis (AK). Establishing reliable criteria for early differentiation of AK grades and SCC is essential for timely intervention and regular examination. PURPOSE: This study investigates clinical and dermoscopic criteria for AK and SCC grades, exploring the pathological basis of features to aid clinicians in assessing disease status and guiding treatment. PATIENTS AND METHODS: Clinical and dermoscopic images of AK and SCC patients were assessed by three independent researchers. Key dermoscopic features were identified and correlated with pathological findings. RESULTS: A total of 106 AK cases (36 AK I, 24 AK II, 46 AK III; 33 PRO I, 40 PRO II, 33 PRO III) and 33 SCC cases were included. Clinical positive predictors for SCC included solitary lesions (P = 0.020), ulcerated crusts (P < 0.001), and yellow opaque scales (P = 0.012). Dermoscopic positive predictors for SCC were hairpin vessels (OR 5.644), white structureless areas (OR 3.538) and ulceration (OR 7.311). Negative predictors included strawberry pattern (OR 0.052) and linear vessels (OR 0.088). Dermoscopy also demonstrated potential in distinguishing between different grades of AK and SCC, particularly in high-grade AK and SCC. High-grade AK (AK III and PRO III) exhibited yellowish-white opaque scales, enlarged follicular openings. while SCC lesions demonstrated characteristic dermoscopic features including ulcerations (51.5%, 17/33) and erosions (66.7%, 22/33). Dermoscopic grading significantly correlated with both pathological grading systems (P < 0.05). Dermoscopic features such as pigmentation, white fine scaling, erosions, ulceration, white structureless areas, white lines, and vessel patterns were pathologically validated, corresponding to changes related to epidermal basal cells, along with increased inflammatory cell infiltration and fibroblast content in the dermis. CONCLUSION: Dermoscopy offers a non-invasive and effective method for assessing lesion malignancy across various grades of AK and SCC, reflecting their pathological features and aiding clinical diagnosis while potentially reducing unnecessary biopsies.