The skin protects us from water loss and mechanical damage. The surface-exposed epidermis, a self-renewing stratified squamous epithelium composed of several layers of keratinocytes, is most important in the barrier defense against these challenges. Endogenous and exogenous proteases such as kallikreins, matriptase, caspases, cathepsins, and proteases derived from microorganisms are important in the desquamation process of the stratum corneum and are able to activate and inactivate defense molecules in human epidermis. Protease inhibitors such as like LEKTI, elafin, SLPI, SERPINs, and cystatins regulate their proteolytic activity and contribute to the integrity and protective barrier function of the skin. Changes in the proteolytic balance of the skin can result in inflammation, which leads to the typical clinical signs of redness, scaling, and itching. This review summarizes the current knowledge of how proteases, their inhibitors, and their target proteins, including filaggrin, protease-activated receptors, and corneodesmosin, contribute to the pathophysiology of inflammation of the skin and highlight their role in common inflammatory skin diseases such as atopic dermatitis, rosacea, and psoriasis.