Long-term management of inflammatory skin diseases is challenging because of side effects from repeated use of systemic treatments or topical corticosteroids. This study sought to identify the mechanisms and developmental therapeutics for these diseases using genetic models and pharmacological approaches. We found that mice overexpressing SMAD7 in keratinocytes but not mice overexpressing the N-terminal domain of SMAD7 (i.e., N-SMAD7) were resistant to imiquimod-induced T helper 1/17- and T helper 2-type inflammation. We generated a Tat-PYC-SMAD7 (truncated SMAD7 protein encompassing C-terminal SMAD7 and PY motif fused with cell-penetrating Tat peptide). Topically applied Tat-PYC-SMAD7 to inflamed skin entered cells upon contact and attenuated imiquimod-, 2,4-dinitrofluorobenzene-, and tape-stripping-induced inflammation. RNA-sequencing analyses of mouse skin exposed to these insults showed that in addition to inhibiting TGFβ/NF-κB, SMAD7 blunted IL-22/signal transducer and activator of transcription 3 activation and associated pathogenesis, which is due to SMAD7 transcriptionally upregulating IL-22 antagonist IL-22RA2. Mechanistically, SMAD7 facilitated nuclear translocation and DNA binding of C/EBPβ to IL22RA2 promoter for IL22RA2 transactivation. Consistent with the observations in mice mentioned earlier, transcript levels of IL22RA2 were increased in human atopic dermatitis and psoriasis lesions with clinical remission. Our study identified the anti-inflammation functional domain of SMAD7 and suggests the mechanism and feasibility for developing SMAD7-based biologics as a topical therapy for skin inflammatory disorders.