DNA methylation is a fundamental epigenetic modification, important across biological processes. The maintenance methyltransferase DNMT1 is essential for lineage differentiation during development, but its functions in tissue homeostasis are incompletely understood. We show that epidermis-specific DNMT1 deletion severely disrupts epidermal structure and homeostasis, initiating a massive innate immune response and infiltration of immune cells. Mechanistically, DNA hypomethylation in keratinocytes triggered transposon derepression, mitotic defects, and formation of micronuclei. DNA release into the cytosol of DNMT1-deficient keratinocytes activated signaling through cGAS and STING, thus triggering inflammation. Our findings show that disruption of a key epigenetic mark directly impacts immune and tissue homeostasis, and potentially impacts our understanding of autoinflammatory diseases and cancer immunotherapy.