Human multipotent dermal stem cells (DSCs) have been isolated and propagated from the dermal region of neonatal foreskin. DSCs can self-renew, express the neural crest stem cell markers NGFRp75 and nestin, and are capable of differentiating into a wide variety of cell types including mesenchymal and neuronal lineages and melanocytes, indicative of their neural crest origin. When placed in the context of reconstructed skin, DSCs migrate to the basement membrane zone and differentiate into melanocytes. These findings, combined with the identification of NGFRp75-positive cells in the dermis of human foreskin, which are devoid of hair, suggest that DSCs may be a self-renewing source of extrafollicular epidermal melanocytes. In this review, we discuss the properties of DSCs, the pathways required for melanocyte differentiation, and the value of 3D reconstructed skin to assess the behavior and contribution of DSCs in the naturalized environment of human skin. Potentially, DSCs provide a link to malignant melanoma by being a target of UVA-induced transformation.