Skin morphogenesis, maintenance, and healing after wounding require complex epithelial-mesenchymal interactions. In this study, we show that for skin homeostasis, interleukin-1 (IL-1) produced by keratinocytes activates peroxisome proliferator-activated receptor beta/delta (PPARbeta/delta) expression in underlying fibroblasts, which in turn inhibits the mitotic activity of keratinocytes via inhibition of the IL-1 signaling pathway. In fact, PPARbeta/delta stimulates production of the secreted IL-1 receptor antagonist, which leads to an autocrine decrease in IL-1 signaling pathways and consequently decreases production of secreted mitogenic factors by the fibroblasts. This fibroblast PPARbeta/delta regulation of the IL-1 signaling is required for proper wound healing and can regulate tumor as well as normal human keratinocyte cell proliferation. Together, these findings provide evidence for a novel homeostatic control of keratinocyte proliferation and differentiation mediated via PPARbeta/delta regulation in dermal fibroblasts of IL-1 signaling. Given the ubiquitous expression of PPARbeta/delta, other epithelial-mesenchymal interactions may also be regulated in a similar manner.