Hair follicles (HFs) undergo cyclic bouts of degeneration, rest, and regeneration. During rest (telogen), the hair germ (HG) appears as a small cell cluster between the slow-cycling bulge and dermal papilla (DP). Here we show that HG cells are derived from bulge stem cells (SCs) but become responsive quicker to DP-promoting signals. In vitro, HG cells also proliferate sooner but display shorter-lived potential than bulge cells. Molecularly, they more closely resemble activated bulge rather than transit-amplifying (matrix) cells. Transcriptional profiling reveals precocious activity of both HG and DP in late telogen, accompanied by Wnt signaling in HG and elevated FGFs and BMP inhibitors in DP. FGFs and BMP inhibitors participate with Wnts in exerting selective and potent stimuli to the HG both in vivo and in vitro. Our findings suggest a model where HG cells fuel initial steps in hair regeneration, while the bulge is the engine maintaining the process.