It has been established that the dermal papilla and the lower dermal sheath of a hair follicle can induce a new hair bulb in follicular epidermis. However, the upper dermal sheath has been believed not to have such an inductive capacity. In contrast to this generally accepted notion, the present study claims the inductive capacity of the upper dermal sheath of a rat vibrissa follicle, as pelage-type hairs were autonomously produced in the amputated upper halves of the follicles when implanted under the kidney capsule for 8 weeks. The study with monoclonal antibodies specific to different follicular tissues clearly revealed the regeneration of small hair bulbs in these implants and suggested that the fine hairs were formed as a result of the interaction between the upper dermal sheath cells and the follicular basal cells. Newly formed bulbs located at two separate sites, one at the amputated end and the other in the upper region of the follicles. No bulb was formed near the bulge area where follicular stem cells had been reported to locate. However, the possibility of involvement of the stem cells in the bulb formation remains, as migration and rearrangement of epidermal cells had occurred in the implants. Together with the comparative experiments on the inductive potential of various dermal compartments, the present study showed that the upper dermal sheath possesses a hair-inducing ability which is weak, as compared to the lower dermal compartments, but sufficient to induce the follicular epidermis to differentiate into the pelage-like hair-producing bulb, and would be activated only under this specific condition.