Basaloid skin tumors, including basal cell carcinoma (BCC) and basaloid follicular hamartoma, are associated with aberrant Hedgehog (Hh) signaling and, in the case of BCC, an expanding set of genetic variants including keratin 5 (encoded by KRT5), an intermediate filament-forming protein. We here show that genetic ablation of keratin 17 (Krt17) protein, which is induced in basaloid skin tumors and co-polymerizes with Krt5 in vivo, delays basaloid follicular hamartoma tumor initiation and growth in mice with constitutive Hh signaling in epidermis. This delay is preceded by a reduced inflammation and a polarization of inflammatory cytokines from a Th1- and Th17-dominated profile to a Th2-dominated profile. Absence of Krt17 also attenuates hyperplasia and inflammation in models of acute dermatitis. Re-expression of Krt17 in Gli2(tg); Krt17(-/-) keratinocytes induces select Th1 chemokines that have established roles in BCC. Our findings establish an immunomodulatory role for Krt17 in Hh driven basaloid skin tumors that could impact additional tumor settings, psoriasis and wound repair.