Hair is arguably the most crucial skin appendage that shapes one’s self-image and acceptance in our society. However, despite this critical function, the precise regulatory steps governing the formation of hair follicles remains poorly understood. It is known, though, that hair follicle formation involves cell commitment, programmed cell death, mesenchymal-epithelial interactions and differentiation (1 ,2 ), and that it is a continuously renewing system. It cycles, from stages of resting (telogen), to stages of growth (anagen), as well as a short regression phase (catagen), before entering back to a new cycle (3 –7 ); suggesting that there is a reservoir of cells in the hair follicle capable of hair follicle formation throughout life. However, the identity of the stem cells, as well as the signals and the steps from stem cells to committed epidermal progenitor cells to differentiated hair follicle cells, has not been elucidated. This has been owing to the lack of an in vitro model system that would enable the study of the steps and stages of hair follicle cell differentiation. Embryonic stem (ES) cells provide an excellent cell culture system with a capacity to give rise to various lineages in vitro. Using the R1 ES cell line (8 ), we have recently developed a culture system that allows ES cells to differentiate into hair keratin expressing mature hair follicle cells. It is predicted that this culture system will be invaluable to delineate the mechanisms involved in hair follicle formation, thereby allowing for the development of treatments and therapies for hair growth and regeneration.