OTULIN is a deubiquitinase that specifically cleaves linear ubiquitin chains. Here we demonstrate that the ablation of Otulin selectively in keratinocytes causes inflammatory skin lesions that develop into verrucous carcinomas. Genetic deletion of Tnfr1, knockin expression of kinase-inactive Ripk1 or keratinocyte-specific deletion of Fadd and Mlkl completely rescues mice with OTULIN deficiency from dermatitis and tumorigenesis, thereby identifying keratinocyte cell death as the driving force for inflammation. Single-cell RNA-sequencing comparing non-lesional and lesional skin reveals changes in epidermal stem cell identity in OTULIN-deficient keratinocytes prior to substantial immune cell infiltration. Keratinocytes lacking OTULIN display a type-1 interferon and IL-1β response signature, and genetic or pharmacologic inhibition of these cytokines partially inhibits skin inflammation. Finally, expression of a hypomorphic mutant Otulin allele, previously shown to cause OTULIN-related autoinflammatory syndrome in humans, induces a similar inflammatory phenotype, thus supporting the importance of OTULIN for restraining skin inflammation and maintaining immune homeostasis.