Prior studies have revealed the key roles played by Th1/Th2 cell dysregulation, IgE production, mast cell hyperactivity, and dendritic cell signaling in the evolution of the chronic, pruritic, inflammatory dermatosis that characterizes atopic dermatitis (AD). We review here increasing evidence that the inflammation in AD results primarily from inherited abnormalities in epidermal structural and enzymatic proteins that impact permeability barrier function. We also will show that the barrier defect can be attributed to a paracellular abnormality due to a variety of abnormalities in lipid composition, transport and extracellular organization. Accordingly, we also review the therapeutic implications of this emerging pathogenic paradigm, including several current and potentially novel, lipid-based approaches to corrective therapy. This article is part of a Special Issue entitled The Important Role of Lipids in the Epidermis and their Role in the Formation and Maintenance of the Cutaneous Barrier. Guest Editors: Kenneth R. Feingold and Peter Elias.