Dermal water content is an important biophysical parameter in preserving skin integrity and preventing skin damage. Traditional electrical-based and open-chamber evaporimeters have several well-known limitations. In particular, such devices are costly, sizeable, and only provide arbitrary outputs. They also do not permit continuous and non-invasive monitoring of dermal water content, which can be beneficial for various consumer, clinical and cosmetic purposes. We report here on the design and development of a digital multi-wavelength optical sensor that performs continuous and non-invasive measurement of dermal water content. In-silico investigation on porcine skin was carried out using the Monte Carlo modelling strategy to evaluate the feasibility and characterise the sensor. Subsequently, an in-vitro experiment was carried out to evaluate the performance of the sensor and benchmark its accuracy against a high-end, broad band spectrophotometer. Reference measurements were made against gravimetric analysis. The results demonstrate that the developed sensor can deliver accurate, continuous, and non-invasive measurement of skin hydration through measurement of dermal water content. Remarkably, the novel design of the sensor exceeded the performance of the high-end spectrophotometer due to the important denoising effects of temporal averaging. The authors believe, in addition to wellbeing and skin health monitoring, the designed sensor can particularly facilitate disease management in patients presenting diabetes mellitus, hypothyroidism, malnutrition, and atopic dermatitis.