Temporary deafferentation of the upper limb, with ischemic or anesthetic nerve block, has rapid effects on sensorimotor cortex. Cutaneous anesthesia of the forearm has recently been found to improve sensory and motor function of the paretic hand in chronic stroke patients. However, the neurophysiological mechanisms are unknown. The aim of this study was to investigate the behavioral and neurophysiological effects of cutaneous forearm anesthesia. Twenty-five healthy right-handed adults participated in this double-blind, randomized study. Participants completed two sessions, with either a topical anesthesia cream (EMLA) or placebo applied to their left forearm in each session. Thresholds for cutaneous sensation and spatial acuity of the left hand were measured before and after the intervention. Transcranial magnetic stimulation was used to measure corticomotor excitability and short-interval intracortical inhibition in the left first dorsal interosseous and abductor digiti minimi muscles before and after the intervention. Manual dexterity was assessed with the grooved pegboard task after the intervention in each session. Left-hand dexterity improved to a greater extent after treatment with EMLA than placebo, and this was related to improved spatial acuity at the fingertips. Corticomotor excitability remained stable, and short-interval intracortical inhibition increased after EMLA treatment. We have confirmed and extended previous reports that cutaneous forearm anesthesia results in improved spatial acuity and manual dexterity of the ipsilateral hand. The neurophysiological mechanisms involve an increase in intracortical inhibition, which may improve the precision of voluntary movement. These results lend support to the therapeutic application of EMLA in movement rehabilitation.