Nuclear factor kappa-B (NF-kB) was discovered in 1986 and has since been studied extensively for its role as a master inflammatory transcription factor. As inflammation is critical for normal immune response but its chronic presence can be detrimental under pathological conditions, I sought to investigate the role of NF-kB in mesenchymal tissues under diabetic and homeostatic conditions. Aberrant activation of NF-kB and chronic inflammation have been documented in diabetic complications of kidney, eyes and cardiovascular system. Here I found that experimental type 1 diabetes caused hyperactivation of NF-kB in skeletal stem cells (SSCs) in the long bones of mice. Deletion of Ikkb, an activator of canonical NF-kB pathway, in Prx1+ (Paired Related Homeobox 1) SSCs prevented NF-kB activity and reversed the effect of diabetes on SSC apoptosis and anti-proliferation. In addition, it rescued the immuno-regulatory property of SSCs by transforming growth factor beta-1 (TGFb1), which in turn promoted macrophage polarization towards pro-resolving phenotype. These findings point to a detrimental role of NF-kB under pathologic condition such as type 1 diabetes. Surprisingly, I observed that NF-kB inactivation in Prx1+ cells caused hyper-inflammation and skin lesion that progressed with aging. The location of lesion was specific to ventral skin, consistent with the pattern of Prx1+ expression in mesenchyme derived from embryonic lateral plate mesoderm. Ikkb deletion in Col1a2Cre+ skin fibroblasts, but not Adipoq-Cre+ mature adipocytes, was sufficient to cause local inflammation but not in spleen or bone marrow. Single cell RNA sequencing analysis revealed an immune response that was characterized by an exaggerated inflammatory macrophage and type 2 T cell responses in the experimental animals. Furthermore, Prx1+ fibroblasts that had Ikkb deletion overexpressed CCL11 (also known as eotaxin-1), a potent chemoattractant for eosinophils. These results indicate Ikkb-NFkB activity in fibroblasts as an important contributor of immune homeostasis against an inflammatory response that mirrors the signs of atopic dermatitis. Thus, Ikkb-NFkB exhibits dual and opposing roles in Prx1+ mesenchymal cells where it is critical for homeostasis in dermal immunity, but it is detrimental in diabetic bone healing. These differential responses may be explained by the healthy or diseased status and/or by the niche-specific role of Prx1+ cells.