Electron–hole plasma‐induced dephasing and its influence on the excitonic absorption and the degenerate four‐wave mixing spectra in monolayer transition metal dichalcogenides are investigated. A systematic microscopic theory is presented that combines density functional calculations for the linear material properties with a many‐body equation of motion approach for the optical response. Numerical results are obtained for the example of an hBN‐encapsulated layer of . It is shown that the influence of the excitation‐induced dephasing depends only weakly on the exact shape of the carrier distribution for small densities, whereas distribution details become more important with increasing density.