Cutaneous squamous cell carcinoma (cSCC) is the second most common skin cancer and frequently progresses from an actinic keratosis (AK), a sun-induced keratinocyte intraepithelial neoplasia (KIN). Epigenetic mechanisms involved in the phenomenon of progression from AK to cSCC remain to be elicited. Expression of microRNAs in sun-exposed skin, AK and cSCC was analysed by Agilent microarrays. DNA methylation of miR-204 promoter was determined by bisulphite treatment and pyrosequencing. Identification of miR-204 targets and pathways was accomplished in HaCat cells. Immunofluorescence and immunohistochemistry were used to analyze STAT3 activation and PTPN11 expression in human biopsies. cSCCs display a marked downregulation of miR-204 expression when compared to AK. DNA methylation of miR-204 promoter was identified as one of the repressive mechanisms that accounts for miR-204 silencing in cSCC. In HaCaT cells miR-204 inhibits STAT3 and favours the MAPK signaling pathway, likely acting through PTPN11, a nuclear tyrosine phosphatase that is a direct miR-204 target. In non-peritumoral AK lesions, activated STAT3, as detected by pY705-STAT3 immunofluorescence, is retained in the membrane and cytoplasm compartments, whereas AK lesions adjacent to cSCCs display activated STAT3 in the nuclei. Our data suggest that miR-204 may act as a "rheostat" that controls the signalling towards the MAPK pathway or the STAT3 pathway in the progression from AK to cSCC. The online version of this article (doi:10.1186/s12943-016-0537-z) contains supplementary material, which is available to authorized users.