Lactic acid is an alpha hydroxy acid (AHA) extracted from milk, although most forms used in cosmetics are synthetic because that form is easier to formulate with and stabilize. In a pH-correct formula, lactic acid exfoliates cells on the surface of skin by breaking down the material that holds dead skin together. It may cause sensitivity, although this isn’t common. Lactic acid also has water-binding properties and, like glycolic acid (another AHA), may help brighten an uneven skin tone.
Journal der Deutschen Dermatologischen Gesellschaft, 2012, issue 7, pages 488-491