As the ability to detect and define stem cells (SCs) has increased, attention is turning towards the definition of the niche and the identification of the signals that induce SC quiescence or proliferation. The melanocyte stem-niche system, in which the SCs and their progeny occupy geographically distinct domains within the hair follicle, provides one of the best models for studying the complex interplay between environmental cues and transcription factors that underpin cell fate. This review discusses what is known of the origin and molecular characteristics of melanocyte SCs and proposes a series of temporal events that are likely to contribute to the establishment of melanocyte SCs in the hair follicle. We also highlight the possibility of in vitro systems capable of directing cultured melanocytes/melanoblasts to a SC fate in response to specific extrinsiccues.