Dermal adipocyte lineage cells are highly plastic and can undergo reversible differentiation and dedifferentiation in response to various stimuli. Using single-cell RNA sequencing of developing or wounded mouse skin, we classify dermal fibroblasts (dFBs) into distinct non-adipogenic and adipogenic cell states. Cell differentiation trajectory analyses identify IL-1-NF-κB and WNT-β-catenin as top signaling pathways that positively and negatively associate with adipogenesis, respectively. Upon wounding, activation of adipocyte progenitors and wound-induced adipogenesis are mediated in part by neutrophils through the IL-1R-NF-κB-CREB signaling axis. In contrast, WNT activation, by WNT ligand and/or ablation of Gsk3, inhibits the adipogenic potential of dFBs but promotes lipolysis and dedifferentiation of mature adipocytes, contributing to myofibroblast formation. Finally, sustained WNT activation and inhibition of adipogenesis is seen in human keloids. These data reveal molecular mechanisms underlying the plasticity of dermal adipocyte lineage cells, defining potential therapeutic targets for defective wound healing and scar formation.