Introduction: The accurate and timely diagnosis of skin diseases is a critical concern, as many skin diseases exhibit similar symptoms in the early stages. Most existing automated detection/classification approaches that utilize machine learning or deep learning poses privacy issues, as they involve centralized computing and require local storage for data training. Methods: Keeping the privacy of sensitive patient data as a primary objective, in addition to ensuring accuracy and efficiency, this paper presents an algorithm that integrates Federated learning techniques into an IoT-based edge-computing environment. The purpose of the proposed technique is to protect the sensitive data by training the model locally on the edge device and transferring only the weights to the central server where the aggregation takes place. This process ensures data security at the edge level and eliminates the need for centralized storage. Furthermore, the proposed framework enhances the network’s real-time processing capabilities using IoT-integrated sensors, which in turn facilitates swift diagnoses. In addition, this paper also focuses on the design and execution of the federated framework, which includes the processing power, memory, and the number of nodes present in the network. Results: The accuracy and effectiveness of the proposed algorithm are demonstrated using precise parameters, such as accuracy, precision, f1-score, and recall, along with all the intricacies of the secure federated approach. The accuracy achieved by the proposed algorithm is 98.6%. As the model was trained locally, the bandwidth utilization was almost negligible. Discussion: The proposed model can assist skin specialists in diagnosing conditions. Additionally, with federated learning, the model continuously improves as new input data accumulates, enhancing the accuracy of subsequent training rounds.