Topical application of coal tar is one of the oldest therapies for atopic dermatitis (AD), a T helper 2 (Th2) lymphocyte–mediated skin disease associated with loss-of-function mutations in the skin barrier gene, filaggrin (FLG). Despite its longstanding clinical use and efficacy, the molecular mechanism of coal tar therapy is unknown. Using organotypic skin models with primary keratinocytes from AD patients and controls, we found that coal tar activated the aryl hydrocarbon receptor (AHR), resulting in induction of epidermal differentiation. AHR knockdown by siRNA completely abrogated this effect. Coal tar restored filaggrin expression in FLG-haploinsufficient keratinocytes to wild-type levels, and counteracted Th2 cytokine–mediated downregulation of skin barrier proteins. In AD patients, coal tar completely restored expression of major skin barrier proteins, including filaggrin. Using organotypic skin models stimulated with Th2 cytokines IL-4 and IL-13, we found coal tar to diminish spongiosis, apoptosis, and CCL26 expression, all AD hallmarks. Coal tar interfered with Th2 cytokine signaling via dephosphorylation of STAT6, most likely due to AHR-regulated activation of the NRF2 antioxidative stress pathway. The therapeutic effect of AHR activation herein described opens a new avenue to reconsider AHR as a pharmacological target and could lead to the development of mechanism-based drugs for AD.