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As part of the move several executives will leave the online marketplace, including its chief marketing officer.
Chief executive Josh Silverman told staff the cuts were needed as sales had been “essentially flat” for two years.
He acknowledged the “unfortunate” timing of the cuts, during the holiday season, adding that laid-off staff would be paid until at least 2 January.
The job cuts are part of a strategy to make Etsy a “more focused, agile company”, Mr Silverman said in post on the firm’s website.
The lay-offs will cost the company as much as $30m (£23.7m) for severance payments, employee benefits and related costs, it said in an announcement to investors.
Following the job cuts, which are expected to be completed in the first three months of next year, Etsy’s core marketplace team will employ around 1,770 people.
In August, Etsy said it would change its policy after sellers complained of money being withheld.
The U-turn came after it was reported that some sellers had 75% of their money frozen for 45 days.
Etsy said it was “substantially decreasing” the amount of money it would put on hold but did not state the new rate or time frame.
