Abnormal proliferation of keratinocytes in the skin appears crucial to the pathogenesis of psoriasis, but the underlying mechanisms remain unknown. Nitric oxide (NO), released from keratinocytes at high concentrations, is considered a key inhibitor of cellular proliferation and inducer of differentiation in vitro. Although high-output NO synthesis is suggested by the expression of inducible NO synthase (iNOS) mRNA and protein in psoriasis lesions, the pronounced hyperproliferation of psoriatic keratinocytes may indicate that iNOS activity is too low to effectively deliver anti-proliferative NO concentrations. Here we show that arginase 1 (ARG1), which substantially participates in the regulation of iNOS activity by competing for the common substrate L-arginine, is highly overexpressed in the hyperproliferative psoriatic epidermis and is co-expressed with iNOS. Expression of L-arginine transporter molecules is found to be normal. Treatment of primary cultured keratinocytes with Th1-cytokines, as present in a psoriatic environment, leads to de novo expression of iNOS but concomitantly a significant down-regulation of ARG1. Persistent ARG1 overexpression in psoriasis lesions, therefore, may represent a disease-associated deviation from normal expression patterns. Furthermore, the culturing of activated keratinocytes in the presence of an ARG inhibitor results in a twofold increase in nitrite accumulation providing evidence for an L-arginine substrate competition in human keratinocytes. High-output NO synthesis is indeed associated with a significant decrease in cellular proliferation as shown by down-regulation of Ki67 expression in cultured keratinocytes but also in short-term organ cultures of normal human skin. In summary, our data demonstrate for the first time a link between a human inflammatory skin disease, limited iNOS activity, and ARG1 overexpression. This link may have substantial implications for the pathophysiology of psoriasis and the development of new treatment strategies.