Transforming growth factor-β (TGF-β) is a multifunctional growth factor involved in many physiological processes including wound healing and inflammation. Excessive TGF-β signaling in the skin has been implicated in fibrotic skin disorders such as keloids and scleroderma. We previously identified CD109 as a TGF-β co-receptor and inhibitor of TGF-β signaling and have shown that transgenic mice overexpressing CD109 in the epidermis display decreased scarring. In certain cell types, in addition to the canonical type I receptor, ALK5, which activates Smad2/3, TGF-β can signal through another type I receptor, ALK1, which activates Smad1/5. Here we demonstrate that ALK1 is expressed and co-localizes with CD109 in mouse keratinocytes and that mice overexpressing CD109 in the epidermis display enhanced ALK1-Smad1/5 signaling but decreased ALK5-Smad2/3 signaling, TGF-β expression, and extracellular matrix production in the skin when compared with wild-type littermates. Furthermore, treatment with conditioned media from isolated keratinocytes or epidermal explants from CD109 transgenic mouse skin leads to a decrease in extracellular matrix production in mouse skin fibroblasts. Taken together, our findings suggest that CD109 differentially regulates TGF-β-induced ALK1-Smad1/5 versus ALK5-Smad2/3 pathways, leading to decreased extracellular matrix production in the skin and that epidermal CD109 expression regulates dermal function through a paracrine mechanism.