Hair shafts are produced from stem cells located in the bulge. Our knowledge of the genetic pathways regulating cell fate acquisition in the immediate descendents of these stem cells, and fate maintenance in their committed progeny, is still incomplete. One pathway involved in fate maintenance within the hair matrix is the Notch pathway. Here we use compound genetic mutants to demonstrate that two transcription factors, Msx2 and Foxn1, are both required to maintain Notch1 expression in the hair follicle matrix. In their absence, Notch1 is markedly reduced in hair matrix; as a consequence, medulla and inner root sheath (IRS) differentiation is impaired. Our studies also suggest that Foxn1 is a direct activator of the Notch1 promoter activity through one or more putative Foxn1 consensus binding sites located within the 4.7 kb of mouse Notch1 promoter. Since recombinant human BMP4 can induce Foxn1 expression in Msx2-deficient hair follicles, and that their effect on cortical keratin expression appears synergistic, we suggest that these two genes function in parallel pathways downstream of BMP signaling and upstream of Notch1. Independent from their role in Notch activation, Msx2 and Foxn1 also contribute to the expression of several cortical and cuticle keratins. The impact of these additional defects is the complete loss of all visible external hairs, not seen in Notch1 mutants. Our results position Msx2 and Foxn1 upstream of Notch1 within the hair matrix and demonstrate that together these factors play a pivotal role in IRS, cortex and medulla differentiation.