Most mammals are coated with pigmented hair. Melanocytes in each hair follicle produce melanin pigments for the hair during each hair cycle. The key to understanding the mechanism of cyclic melanin production is the melanocyte stem cell (MelSC) population, previously known as ‘amelanotic melanocytes’. The MelSCs directly adhere to hair follicle stem cells, the niche cells for MelSCs and reside in the hair follicle bulge–subbulge area, the lower permanent portion of the hair follicle, to serve as a melanocyte reservoir for skin and hair pigmentation. MelSCs form a stem cell system within individual hair follicles and provide a ‘hair pigmentary unit’ for each cycle of hair pigmentation. This review focuses on the identification of MelSCs and their characteristics and explains the importance of the MelSC population in the mechanisms of hair pigmentation, hair greying, and skin repigmentation.