Skin regeneration has been a challenging clinical problem especially in cases of chronic wounds such as diabetic foot ulcers, and epidermolysis bullosa-related skin blisters. Prolonged non-healing wounds often lead to bacterial infections increasing the severity of wounds. Current treatment strategies for chronic wounds include debridement of wounds along with antibiotics, growth factors, and stem cell transplantation therapies. However, the compromised nature of autologous stem cells in patients with comorbidities such as diabetes limits the efficacy of the therapy. The discovery of induced pluripotent stem cell (iPSC) technology has immensely influenced the field of regenerative therapy. Enormous efforts have been made to develop integration-free iPSCs suitable for clinical therapies. This review focuses on recent advances in the methods and reprogramming factors for generating iPSCs along with the existing challenges such as genetic alterations, tumorigenicity, immune rejection, and regulatory hurdles for the clinical application of iPSCs. Furthermore, this review also highlights the benefits of using iPSCs for the generation of skin cells and skin disease modeling over the existing clinical therapies for skin regeneration in chronic wounds and skin diseases.