In mouse dorsal skin, epithelial hair placodes are formed in an initial wave around embryonic day (E) 13.5. The placodes induce the formation of mesenchymal dermal condensates (DCs), which subsequently induce hair follicles. However, the inductive signal for placode formation, and its source, is unclear. Now, Marja Mikkola and colleagues use genetic tissue labelling combined with heterotypic tissue recombination experiments (exchanging the epithelial and mesenchymal components of dorsal and hairless plantar skin) to show that dorsal mesenchyme can induce hair follicles in plantar epithelium, even before DC formation at E12.5. Conversely, plantar mesenchyme cannot induce placodes in dorsal epithelium. Furthermore, Fgf20 null dorsal mesenchyme, which does not form DCs, induces hair follicles in the plantar epithelium, and dorsal mesenchyme from wild-type animals can also promote hair follicle formation in non-epidermal oral epithelium. Through imaging and genetic signalling reporter experiments, the authors determine that the density of Wnt-activated mesenchymal cells, and mesenchymal cells overall, is probably not responsible for inducing hair follicles. Finally, BMP pathway inhibition and Wnt signalling activation affect placodal patterning but do not produce ectopic placodes. Together, these data provide definitive evidence that skin mesenchyme is the source of hair placode inducing signal(s).