Summary: Hair differentiation and growth are controlled by complex reciprocal signaling between epithelial and mesenchymal cells. To better understand the requirement and molecular mechanism of BMP signaling in hair follicle development, we performed genetic analyses of bone morphogenetic protein receptor 1A (BMPR-IA) function during hair follicle development by using a conditional knockout approach. The conditional mutation of Bmpr1a in ventral limb ectoderm and its derivatives (epidermis and hair follicles) resulted in a lack of hair outgrowth from the affected skin regions. Mutant hair follicles exhibited abnormal morphology and lacked hair formation and pigment deposition during anagen. The timing of the hair cycle and the proliferation of hair matrix cells were also affected in the mutant follicles. We demonstrate that signaling via epithelial BMPR-IA is required for differentiation of both hair shaft and inner root sheath from hair matrix precursor cells in anagen hair follicles but is dispensable for embryonic hair follicle induction. Surprisingly, aberrant de novo hair follicle morphogenesis together with hair matrix cell hyperplasia was observed in the absence of BMPR-IA signaling within the affected skin of adult mutants. They developed hair follicle tumors from 3 months of age, indicating that inactivation of epidermal BMPR-IA signaling can lead to hair tumor formation. Taken together, our data provide genetic evidence that BMPR-IA signaling plays critical and multiple roles in controlling cell fate decisions or maintenance, proliferation, and differentiation during hair morphogenesis and growth, and implicate Bmpr1a as a tumor suppressor in skin tumorigenesis. genesis 39:10–25, 2004. © 2004 Wiley-Liss, Inc.