Arrhythmogenic cardiomyopathy (ACM) is an inherited disorder often caused by pathogenic variants in desmosomal genes and characterized by progressive fibrotic and fat tissue accumulation in the heart. The cellular origin and responsible molecular mechanisms of fibro-fatty deposits have been a matter of debate, due to limitations in animal models recapitulating this phenotype. Here, we used human-induced pluripotent stem cell (hiPSC)–derived cardiac cultures, single-cell RNA sequencing (scRNA-seq), and explanted human ACM hearts to study the epicardial contribution to fibro-fatty remodeling in ACM. hiPSC-epicardial cells generated from patients with ACM showed spontaneous fibro-fatty cellular differentiation that was absent in isogenic controls. This was further corroborated upon siRNA-mediated targeting of desmosomal genes in hiPSC-epicardial cells generated from healthy donors. scRNA-seq analysis identified the transcription factor TFAP2A (activating enhancer-binding protein 2 alpha) as a key trigger promoting this process. Gain- and loss-of-function studies on hiPSC-epicardial cells and primary adult epicardial-derived cells demonstrated that TFAP2A mediated epicardial differentiation through enhancing epithelial-to-mesenchymal transition (EMT). Furthermore, examination of explanted hearts from patients with ACM revealed epicardial activation and expression of TFAP2A in the subepicardial mesenchyme. These data suggest that TFAP2A-mediated epicardial EMT underlies fibro-fatty remodeling in ACM, a process amenable to therapeutic intervention.