Cytokine dysregulation is an attractive concept to explain many of the observed abnormalities in psoriasis. IL-1, in particular, can potentiate immune cellular activation, activate fibroblasts, and increase endothelial cell adhesiveness to leukocytes. Here, we review IL-1 regulation in normal and psoriatic skin in vivo in relation to normal skin and cultured keratinocytes. Contrary to expectations, IL-1 functional activity in psoriatic lesions is reduced, not increased, relative to normal skin. The reduction is attributable to the presence of IL-1 inhibitors, reduced IL-1alpha levels, and an IL-1beta that lacked function in T-cell assays. IL-1beta protein is actually significantly increased in psoriatic lesions, but the mechanism of its non-functionality remains unclear. Unlike cultured keratinocytes, which accumulate large, inactive IL-1beta precursors, both normal and psoriatic skin process IL-1beta to a mature form. Novel mechanisms of post-translational processing by epidermis in vivo may generate a novel form of IL-1beta with unknown functions. The marked abnormalities of IL-1 regulation in psoriatic skin suggest that this molecule may be important in normal skin homeostasis.