Psoriasis is a chronic recurrent inflammatory skin disorder characterized by the dysregulated cross-talk between epidermal keratinocytes and immune cells, leading to keratinocyte hyperproliferation. Several studies demonstrated that Wnt pathway genes were differentially expressed in psoriatic plaques and likely were involved in the pathophysiology of disease. However, the molecular mechanisms underlying Wnt signaling regulation in epidermal hyperplasia in psoriasis remain largely unknown. We report that the expression of secreted frizzled-related protein (SFRP) 4, a negative regulator of the Wnt signaling pathway, was diminished in lesional skin of mouse models and patients with psoriasis. SFRP4 directly inhibited excessive keratinocyte proliferation evoked by proinflammatory cytokines in vitro. Pharmacological inhibition of Wnt signaling or intradermal injection of SFRP4 decreased the severity of the psoriasiform skin phenotype in vivo, including decreased acanthosis and reduced leukocyte infiltration. Mechanistically, we identified that aberrant promoter methylation resulted in epigenetic downregulation of SFRP4 in inflamed skin of patients with psoriasis and in the IL-23–induced mouse model. Our findings suggest that this epigenetic event is critically involved in the pathogenesis of psoriasis, and the downregulation of SFRP4 by CpG island methylation is one possible mechanism contributing to the hyperplasia of epidermis in the disease.