Despite the rapid development of therapeutic approaches for skin repair, chronic wounds such as diabetic foot ulcers remain an unaddressed problem that affects millions of people worldwide. Increasing evidence has revealed the crucial and diverse roles of the immune cells in the development and repair of the skin tissue, prompting new research to focus on further understanding and modulating the local immune niche for comprehensive, ‘perfect’ regeneration. In this review, we first introduce how different immunocytes and certain stromal cells involved in innate and adaptive immunity coordinate to maintain the immune niche and tissue homeostasis, with emphasis on their specific roles in normal and pathological wound healing. We then discuss novel engineering approaches – particularly biomaterials systems and cellular therapies – to target different players of the immune niche, with three major aims to i) overcome ‘under-healing’, ii) avoid ‘over-healing’, and iii) promote functional restoration, including appendage development. Finally, we highlight how these strategies strive to manage chronic wounds and achieve full structural and functional skin recovery by creating desirable ‘soil’ through modulating the immune microenvironment.