Hair dermal papilla cells are specialized mesenchymal cells that exist in the dermal papilla located at the bottom of hair follicles. These cells play pivotal roles in hair formation, growth, and cycling. Hair follicle formation is usually directed by an aggregation of dermal mesenchymal cells, the origin of dermal papilla cells, in the embryonic skin. We noticed that cultured dermal papilla cells also have hair-forming activity and do not lose the activity even after long-term cultivation, if they are cultured with conditioned medium from keratinocytes obtained from the sole or with a medium containing fibroblast growth factor. The secreted factors from keratinocytes and fibroblast growth factor are, therefore, important for maintaining the cellular properties of dermal papilla cells. Even if the hair bulb, including the hair matrix and the dermal papilla, has been removed from vibrissal follicles in vivo, the new hair matrix and papilla can regenerate from the rest of the follicle, and eventually a hair shaft regrows. It has been reported that hair bulb regeneration does not occur when the lower half of a hair follicle is removed. However, new hair bulbs were formed in the remaining upper halves of vibrissal follicles if the amputated follicles had been implanted under the kidney capsule. The formed bulbs were small and pelage-type, not large vibrissa-type. Histological studies showed that the new dermal papillae were derived from dermal sheath cells surrounding upper follicular epidermis, and the new hair matrices were produced from the follicular epidermis. Moreover, the upper halves of vibrissal follicles reformed large vibrissa-type bulbs when they were associated with dermal papillae or cultured papilla cells and implanted in the kidney. Thus, dermal papilla cells and probably dermal sheath cells have the ability to induce and form hair bulbs under preferred environmental conditions. Attempts to identify the genes and proteins associated with hair-forming activity of dermal papilla cells have been carried out. We and other groups successfully isolated the molecules that were specifically expressed in dermal papilla cells. The nature of the hair-producing factors could be understood through the studies of these molecules.