Whole metagenome analysis has the potential to reveal functional triggers of skin diseases, but issues of cost, robustness and sampling efficacy have limited its application. Here, we have established an alternative, clinically practical and robust metagenomic analysis protocol and applied it to 80 skin microbiome samples epidemiologically stratified for atopic dermatitis (AD). We have identified distinct non-flare, baseline skin microbiome signatures enriched for Streptococcus and Gemella but depleted for Dermacoccus in AD-prone versus normal healthy skin. Bacterial challenge assays using keratinocytes and monocyte-derived dendritic cells established distinct IL-1-mediated, innate and Th1-mediated adaptive immune responses with Staphylococcus aureus and Staphylococcus epidermidis. Bacterial differences were complemented by perturbations in the eukaryotic community and functional shifts in the microbiome-wide gene repertoire, which could exacerbate a dry and alkaline phenotype primed for pathogen growth and inflammation in AD-susceptible skin. These findings provide insights into how the skin microbial community, skin surface microenvironment and immune system cross-modulate each other, escalating the destructive feedback cycle between them that leads to AD flare.