Sphingosine 1-phosphate (S1P) lyase is an intracellular enzyme that catalyzes the irreversible degradation of S1P and has been suggested as a therapeutic target for the treatment of psoriasis vulgaris. Because S1P induces differentiation of keratinocytes, we examined whether modulation of S1P lyase and altered intracellular S1P levels regulate proliferation and differentiation of human neonatal epidermal keratinocyte (HEKn) cells. To identify the physiological functions of S1P lyase in skin, we inhibited S1P lyase in HEKn cells with an S1P lyase-specific inhibitor (SLI) and with S1P lyase 1 (SGPL1)-specific siRNA (siSGPL1). In HEKn cells, pharmacological treatment with the SLI caused G1 arrest by upregulation of p21 and p27 and induced keratin 1, an early differentiation marker. Similarly, genetic suppression by siSGPL1 arrested the cell cycle at the G1 phase and activated differentiation. In addition, enzyme suppression by siSGPL1 upregulated keratin 1 and differentiation markers including involucrin and loricrin. When hyperproliferation of HEKn cells was induced by interleukin (IL)-17 and IL-22, pharmacologic inhibition of S1P lyase by SLI decreased proliferation and activated differentiation of HEKn cells simultaneously. In addition, SLI administration ameliorated imiquimod-induced psoriatic symptoms including erythema, scaling, and epidermal thickness in vivo. We thus demonstrated that S1P lyase inhibition reduces cell proliferation and induces keratinocyte differentiation, and that inhibition may attenuate psoriasiform changes. Collectively, these findings suggest that S1P lyase is a modulating factor for proliferation and differentiation, and support its potential as a therapeutic target for psoriasis in human keratinocytes.