Signal transducer and activator of transcription 3 (Stat3) is a latent cytoplasmic protein that conveys signals to the nucleus upon stimulation with IL-6, EGF, and many other cytokines/growth factors, leading to transcriptional activation of the downstream genes. It has been well defined that Stat3 plays critical roles in biological activities including cell proliferation, migration, survival, and oncogenesis. The in vivo role for Stat3 in the skin was elucidated using keratinocyte-specific Stat3 gene knockout mice, referred to as Stat3-disrutped mice. It was shown that Stat3 activation contributed to skin wound healing, keratinocyte migration, hair follicle growth, and resistance to UV irradiation-induced apoptosis. Furthermore, in the two-stage chemical carcinogenesis protocol, Stat3-disrupted mice did not develop any skin tumors. In contrast, transgenic mice with a constitutive active form of Stat3 (K5.Stat3C mice) developed squamous cell carcinoma (SCC) with a shorter latency and in much greater number compared to control mice. These results suggested a role for Stat3 not only in early stages of skin carcinogenesis but also in driving malignant progression in vivo. Moreover, Stat3 was consistently activated in epidermal keratinocytes in human psoriatic lesions, which has been assumed to recapitulate a condition of persistent wound healing reaction. Accordingly, K5.Stat3C mice were found to be psoriasis-prone. Finally, it was demonstrated that an inhibition of Stat3 activation ameliorated these pathological conditions, i.e., skin carcinogenesis and psoriasis. Here we will review the dichotomous roles for Stat3 in maintaining skin homeostasis and in the development of skin diseases such as psoriasis and skin cancer.