Previously, we have shown that CD44 (the hyaluronan receptor) was involved in the degradation of hyaluronan. In the present study, we examined the distribution of CD44 and hyaluronan in the skin of embryonic and mature mice. During embryonic development, CD44 was prominently expressed by the condensed mesenchymal cells involved in the formation of the hair follicles, but was absent from the surrounding interstitial cells. The cells of the dermal condensation expressed CD44 throughout the development of the hair follicle; however, once the hair follicle reached maturity, the mesenchymal cells of the dermal papilla no longer expressed this molecule. In contrast to the above, the distribution of hyaluronan was reversed from that of CD44. Hyaluronan was widespread throughout the embryonic dermis, but was conspicuously absent from the regions of the dermal condensation. This arrangement persisted through the development of the hair follicle; however, in the mature hair follicle, hyaluronan reappeared in the dermal papilla. Thus, in the embryonic dermis, the expression of CD44 and hyaluronan were complementary to each other. However, in the adult skin, only minor changes were detected in the levels of CD44 and hyaluronan associated with the cells of the dermal condensation during the hair cycle. When organ cultures of embryonic mouse skin were treated with Streptomyces hyaluronidase, the interstitial mesenchymal cells became compacted, indicating that the removal of hyaluronan leads to the condensation of these cells. The results of this study are consistent with the hypothesis that the expression of CD44 by the inductive mesenchymal cells allows them to degrade hyaluronan in a localized region, leading to formation and maintenance of the dermal condensation.