All epidermal appendages, including hair, teeth, and nails, begin as a thickening of the ectoderm, called a placode. The placode arises from a primary induction signal that is sent from the underlying mesenchyme to the overlying epidermis. In mammals, the precise arrangement of hair follicles in the skin is due to the amount and distribution of signals that promote and inhibit hair placode formation. Continued development of a hair follicle after placode formation requires a complex cross-talk between the mesenchyme and epidermis. Here, I will review recent studies in humans and mice that have increased our understanding of the role of these signaling pathways in normal development and in hereditary hair loss syndromes. The study of normal hair development may suggest ways to restore or eliminate hair and might identify possible targets for the therapy of basal cell carcinoma, a cancer which strongly resembles embryonic hair follicles.