Although the cause of keloids is unknown, it is thought that they are due to the body's failure to turn off the healing process needed to repair skin. When this occurs, extra collagen forms at the site of the scar, and keeps forming because it is not shut off. This results in keloid formation.

Keloids occur most frequently in individuals of African-American descent and in those with darker skin. They are more common in Polynesians and Chinese than in people from India or Malaysia. Caucasians are the least frequently affected by keloids. Other risk factors include a family history of keloids, surgery, acne, burns, ear piercing, vaccinations, or even insect bites. Spontaneous keloids have been reported occasionally in siblings. In addition, women and young people under the age of 30 are more prone to develop them. Keloids are infrequent among the elderly.

Although the association of keloids with darker skin pigmentation suggests a genetic linkage of some sort, no specific genes have been identified in connection with keloids as of the early 2000s.

Initially, keloids will begin as a small lump where the skin has been injured. This lump grows and can eventually become very large and cosmetically unacceptable.