Epithelial-mesenchymal interactions play pivotal roles in the morphogenesis of many organs and various types of appendages. During hair follicle development, extensive interactions between two embryologically different hair follicle compartments (epidermal keratinocytes and dermal papilla fibroblasts) lead to the formation of the hair shaft-producing mini-organ that shows cyclic activity during postnatal life with periods of active growth, involution and resting. During the hair cycle, the epithelium and the mesenchyme are regulated by a distinct set of molecular signals that are unique for every distinct phase of the hair cycle. In telogen hair follicles, epithelial-mesenchymal interactions are characterized by a predominance of inhibitory signals that retain the hair follicle in a quiescent state. During anagen, a large variety of growth stimulatory pathways are activated in the epithelium and in the mesenchyme, the coordination of which are essential for proper hair fiber formation. During catagen, the termination of anagen-specific signaling interactions between the epithelium and the mesenchyme leads to apoptosis in the hair follicle epithelium, while activation of selected signaling pathways promotes the transition of the dermal papilla into a quiescent state. The signaling exchange between the follicular epithelium and the mesenchyme is modulated by proteoglycans, such as versican, which may significantly enhance or reduce the biological activities of secreted growth stimulators. However, additional research will be required to bridge the gap between our current understanding of mechanisms underlying epithelial-mesenchymal interactions in hair follicles and the potential clinical application of growth modulators involved in those interactions. Further progress in this area of research will hopefully lead to the development of new drugs for the treatment of hair growth disorders.