Clinical conditions causing hair loss, such as androgenetic alopecia, alopecia areata, and scarring alopecia, can be psychologically devastating to individuals and are the target of a multimillion dollar pharmaceutical industry. The importance of the hair follicle in skin biology, however, does not rest solely with its ability to produce hair. Hair follicles are self-renewing and contain reservoirs of multipotent stem cells that are capable of regenerating the epidermis and are thought to be utilized in wound healing. Hair follicles are also the sites of origin of many neoplasias, including some basal cell carcinomas and pilomatricoma. These diseases result from inappropriate activation of signaling pathways that regulate hair follicle morphogenesis. Identification of the signaling molecules and pathways operating in developing and postnatal, cycling, hair follicles is therefore vital to our understanding of pathogenic states in the skin and may ultimately permit the development of novel therapies for skin tumors as well as for hair loss disease. The purpose of this review is to summarize recent progress in our understanding of the molecular mechanisms regulating hair follicle formation, and to discuss ways in which this information may eventually be utilized in the clinic.