High-risk skin cancer is a rare, but severe, complication associated with discoid lupus erythematosus (DLE). Chronic scar, inflammation, UVR, and immunosuppressive medications are proposed explanations for this heightened skin cancer risk; however, the exact mechanism driving skin carcinogenesis in DLE is unknown. The distinct co-localization of multiple independent skin cancers with areas of active inflammation in two DLE patients followed over 8 years strongly suggested that lupus inflammation promotes skin carcinogenesis in DLE. To investigate this clinical observation, we subjected lupus-prone MRL/lpr and control (MRL/n) mice to a skin carcinogenesis protocol. Skin tumors developed preferentially within the cutaneous lupus inflammation without scarring in MRL/lpr mice (P < 0.01). The inflammation in MRL/lpr skin was characterized by the accumulation of regulatory T cells, mast cells, M2 macrophages, and markedly elevated transforming growth factor-β1 and IL-6 levels, which have been linked to tumor promotion. Tacrolimus treatment reduced skin inflammation and blocked cancer development in MRL/lpr mice (P = 0.0195). A similar tumor-promoting immune environment was detected in SCCs and the perilesional skin of cancer-prone DLE patients. Therefore, discoid lupus inflammation promotes skin cancer in high-risk DLE patients, and blocking the inflammation may be critical for preventing this life-threatening complication of DLE.