Localized scleroderma (LS) is an autoimmune disease with both inflammatory and fibrotic components causing an abnormal deposition of collagen in the skin and underlying tissue, often leading to disfigurement and disability. Much of its pathophysiology is extrapolated from systemic sclerosis (SSc) since the histopathology findings in the skin are nearly identical. However, LS is critically understudied. Single-cell RNA sequencing (scRNA seq) technology provides a novel way to obtain detailed information at the individual cellular level, overcoming this barrier. Here, we analyzed the affected skin of 14 patients with LS (pediatric and adult) and 14 healthy controls. Fibroblast populations were the focus, since they are the main drivers of fibrosis in SSc. We identified 12 fibroblast subclusters in LS, which overall had an inflammatory gene expression (IFN and HLA-associated genes). A myofibroblast-like cluster (SFRP4/PRSS23) was more prevalent in LS subjects and shared many upregulated genes expressed in SSc-associated myofibroblasts, though it also had strong expression of CXCL9/10/11, known CXCR3 ligands. A CXCL2/IRF1 cluster identified was unique to LS, with a robust inflammatory gene signature, including IL-6, and according to cell communication analysis are influenced by macrophages. In summary, potential disease-propagating fibroblasts and associated gene signatures were identified in LS skin via scRNA seq.