Malassezia spp. are commensal, cutaneous fungi that are implicated in seborrhoeic dermatitis. We hypothesize that the lipid-rich capsule of Malassezia spp. masks the organism from host detection, and depletion of this layer elicits an inflammatory response. To test this, preparations of capsulated or acapsular [10% (v/v) Triton X-100 treated], viable and nonviable, exponential or stationary phase Malassezia furfur, Malassezia globosa, Malassezia obtusa, Malassezia restricta, Malassezia slooffiae and Malassezia sympodialis, were incubated with normal human keratinocytes. Proinflammatory (IL-6, IL-8, IL-1alpha and tumour necrosis factor-alpha) and anti-inflammatory cytokine (IL-10) release and intracellular IL-10 concentrations were quantified using enzyme-linked immunosorbent assays. Capsulated Malassezia yeasts stimulated limited or no production of inflammatory cytokines, and increased intracellular IL-10 (P < 0.05). Removal of the capsule of many Malassezia preparations caused a significantly increased production of IL-6, IL-8 and IL-1alpha, and a decrease in intracellular IL-10. Notably, acapsular viable, stationary phase M. globosa caused a 66-fold increase in IL-8 production (P < 0.001) and acapsular nonviable, stationary phase M. furfur caused a 38-fold increase in IL-6 production (P < 0.001) and a 12-fold decrease in intracellular IL-10 (P < 0.001). These results support the hypothesis that the lipid layer of Malassezia spp. modulates cytokine production by keratinocytes. This has implications in the pathogenesis of seborrhoeic dermatitis.