Dysplastic nevi (DNs), also known as Clark's nevi or atypical moles, are distinguished from common melanocytic nevi by variegation in pigmentation and clinical appearance, as well as differences in tissue patterning. However, cellular and molecular differences between DNs and common melanocytic nevi are not completely understood. Using cDNA microarray, quantitative RT-PCR, and immunohistochemistry, we molecularly characterized DNs and analyzed the difference between DNs and common melanocytic nevi. A total of 111 probesets (91 annotated genes, fold change > 2.0 and false discovery rate < 0.25) were differentially expressed between the two lesions. An unexpected finding in DNs was altered differentiation and activation of epidermal keratinocytes with increased expression of hair follicle-related molecules (keratin 25, trichohyalin, ribonuclease, RNase A family, 7) and inflammation-related molecules (S100A7, S100A8) at both genomic and protein levels. The immune microenvironment of DNs was characterized by an increase of T helper type 1 (IFNγ) and T helper type 2 (IL13) cytokines as well as an upregulation of oncostatin M and CXCL1. DUSP3, which regulates cellular senescence, was identified as one of the disease discriminative genes between DNs and common melanocytic nevi by three independent statistical approaches and its altered expression was confirmed by immunohistochemistry. The molecular and cellular changes in which the epidermal-melanin unit undergoes follicular differentiation as well as upregulation of defined cytokines could drive complex immune, epidermal, and pigmentary alterations.