Sustained epidermal Wnt/β-catenin signalling expands the stem cell compartment and induces ectopic hair follicles (EFs). This is accompanied by extensive fibroblast proliferation and extracellular matrix (ECM) remodelling in the underlying dermis. Here we show that epidermal Hedgehog (Hh) and Transforming growth factor-beta (TGF-β) signalling mediate the dermal changes. Pharmacological inhibition or genetic deletion of these pathways prevents β-catenin-induced dermal reprogramming and EF formation. Epidermal Shh stimulates proliferation of the papillary fibroblast lineage, whereas TGF-β2 controls proliferation, differentiation and ECM production by reticular fibroblasts. Hh inhibitors do not affect TGF-β target gene expression in reticular fibroblasts, and TGF-β inhibition does not prevent Hh target gene induction in papillary fibroblasts. However, when Hh signalling is inhibited the reticular dermis does not respond to epidermal β-catenin activation. We conclude that the dermal response to epidermal Wnt/β-catenin signalling depends on distinct fibroblast lineages responding to different paracrine signals.