An underactive Thyroid gland (hypothyroidism) causes dry skin and delayed wound healing, fatigue, and depression. Thyroid gland produces two hormones that regulate cell division and metabolism.The Thyroid gland is located on the neck behind the Adams apple. The Thyroid gland is on the same meridian line as the lips. Therefore if the Thyroid gland is not producing enough hormones symptoms of dry peeling lips will continue.