The dielectric constant ε of interfacial water has been predicted to be smaller than that of bulk water (ε ≈ 80) because the rotational freedom of water dipoles is expected to decrease near surfaces, yet experimental evidence is lacking. We report local capacitance measurements for water confined between two atomically flat walls separated by various distances down to 1 nanometer. Our experiments reveal the presence of an interfacial layer with vanishingly small polarization such that its out-of-plane ε is only ~2. The electrically dead layer is found to be two to three molecules thick. These results provide much-needed feedback for theories describing water-mediated surface interactions and the behavior of interfacial water, and show a way to investigate the dielectric properties of other fluids and solids under extreme confinement.