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(PPAR beta/delta) expression in underlying fibroblasts, which in turn inhibits the mitotic activity of keratinocytes via inhibition of the IL-1 signaling pathway. In fact, PPAR beta/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 PPAR beta/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 PPAR beta/delta regulation in dermal. broblasts of IL-1 signaling. Given the ubiquitous expression of PPAR beta/delta, other epithelial mesenchymal interactions may also be regulated in a similar manner.