The dermal papilla (DP) provide instructive signals required to activate epithelial progenitors and initiate hair follicle regeneration. DP cell numbers fluctuate over the hair cycle, and hair loss is associated with gradual depletion/atrophy of DP cells. How DP cell numbers are maintained in healthy follicles remains unclear. We performed in vivo fate mapping of adult hair follicle dermal sheath (DS) cells to determine their lineage relationship with DP and found that a subset of DS cells are retained following each hair cycle, exhibit self-renewal, and repopulate the DS and the DP with new cells. Ablating these hair follicle dermal stem cells and their progeny retarded hair regrowth and altered hair type specification, sug- gesting that they function to modulate normal DP function. This work identifies a bipotent stem cell within the adult hair follicle mesenchyme and has important implications toward restoration of hair growth after injury, disease, and aging.