iRhom1 and iRhom2 are inactive homologues of rhomboid intramembrane serine proteases lacking essential catalytic residues, which are necessary for the maturation of TNFα-converting enzyme (TACE). In addition, iRhoms regulate epidermal growth factor family secretion. The functional significance of iRhom2 during mammalian development is largely unclear. We have identified a spontaneous single gene deletion mutation of iRhom2 in Uncv mice. The iRhom2Uncv/Uncv mice exhibit hairless phenotype in a BALB/c genetic background. In this study, we observed dysplasia hair follicles in iRhom2Uncv/Uncv mice from postnatal day 3. Further examination found decreased hair matrix proliferation and aberrant hair shaft and inner root sheath differentiation in iRhom2Uncv/Uncv mutant hair follicles. iRhom2 is required for the maturation of TACE. Our data demonstrate that iRhom2Uncv cannot induce the maturation of TACE in vitro and the level of mature TACE is also significantly reduced in the skin of iRhom2Uncv/Uncv mice. The activation of Notch1, a substrate of TACE, is disturbed, associated with dramatically down-regulation of Lef1 in iRhom2Uncv/Uncv hair follicle matrix. This study identifies iRhom2 as a novel regulator of hair shaft and inner root sheath differentiation.