Primary sensory afferents of the dorsal root ganglion (DRG) that innervate the skin detect a wide range of stimuli, such as touch, temperature, pain, and itch. Different functional classes of nociceptors project their axons to distinct target zones within the developing skin, but the molecular mechanisms that regulate target innervation are less clear. Here we report that the Nogo66 receptor homolog NgR2 is essential for proper cutaneous innervation. NgR2(-/-) mice display increased density of nonpeptidergic nociceptors in the footpad and exhibit enhanced sensitivity to mechanical force and innocuous cold temperatures. These sensory deficits are not associated with any abnormality in morphology or density of DRG neurons. However, deletion of NgR2 renders nociceptive nonpeptidergic sensory neurons insensitive to the outgrowth repulsive activity of skin-derived Versican. Biochemical evidence shows that NgR2 specifically interacts with the G3 domain of Versican. The data suggest that Versican/NgR2 signaling at the dermo-epidermal junction acts in vivo as a local suppressor of axonal plasticity to control proper density of epidermal sensory fiber innervation. Our findings not only reveal the existence of a novel and unsuspected mechanism regulating epidermal target innervation, but also provide the first evidence for a physiological role of NgR2 in the peripheral nervous system.