The hr (hairless) gene encodes a putative transcription factor with restricted expression in the skin and brain. Mutations in the hr locus cause papular atrichia in humans and complete hair loss in mice and other mammals. To further elucidate the role of hr in skin biology, and to identify potential target cells for hr regulation, we studied hr mRNA localization during hair follicle (HF) morphogenesis and cycling in normal C57BL/6J mice. In situ hybridization revealed that hr expression was present in the suprabasal cell layers of the epidermis, whereas the basal and highly differentiated keratinocytes of the granular layer were hr-negative. During the early stages of HF morphogenesis, hr mRNA was detected in the developing hair peg. Later, it became concentrated in the HF infundibulum, in the HF matrix, and in the inner root sheath (IRS), whereas the dermal papilla (DP) and outer root sheath were consistently hr mRNA-negative. During catagen, hr gene expression gradually declined in the regressing IRS, shortly but dramatically increased in the zone of developing club hair, and became up-regulated in the epithelial cells adjacent to the DP. The co-localization of hr mRNA with the site of the morphological defects in mutant skin implicates hr as a key factor in regulating basic cellular processes during catagen, including club hair formation, maintenance of DP-epithelial integrity, IRS disintegration, and keratinocyte apoptosis in the HF matrix.