Tissue homeostasis and regeneration are regulated by an intricate balance of seemingly competing processes-proliferation versus differentiation, and cell death versus survival. Here we demonstrate that the loss of epidermal caspase 8, an important mediator of apoptosis, recapitulates several phases of a wound healing response in the mouse. The epidermal hyperplasia in the caspase 8 null skin is the culmination of signals exchanged between epidermal keratinocytes, dermal fibroblasts and leukocytic cells. This reciprocal interaction is initiated by the paracrine signalling of interleukin 1alpha (IL1alpha), which activates both skin stem cell proliferation and cutaneous inflammation. The non-canonical secretion of IL1alpha is induced by a p38-MAPK-mediated upregulation of NALP3 (also known as NLRP3), leading to inflammasome assembly and caspase 1 activation. Notably, the increased proliferation of basal keratinocytes is counterbalanced by the growth arrest of suprabasal keratinocytes in the stratified epidermis by IL1alpha-dependent NFkappaB signalling. Altogether, our findings illustrate how the loss of caspase 8 can affect more than programmed cell death to alter the local microenvironment and elicit processes common to wound repair and many neoplastic skin disorders.