The mutant gene wellhaaring (we) confers the waved coat in mice, which is most pronounced in homozygotes at 10 to 21 days of postnatal development. Abnormal hair growth and structure in the we/we mutant mice results from defective cell differentiation in the inner root sheath of a hair follicle. To localize the site of the we gene action, we obtained ten chimeric mice by aggregation of the early C57BL/6-2we/we and BALB/c embryos. The chimera coat was waved, shaggy, or almost normal depending on the percentage of the mutant component. In the we/we +/+ chimeric animals of the first generation (G1) aged 21 days, both mutant and normal hair phenotypes were observed, which was especially discernible in zigzag hair. Note that none of the chimeras exhibited the alternating patterns of transversely oriented stripes or patches of either mutant or normal hair; i.e., they had a mixed parental hair phenotype. We also did not observe the animals with an intermediate phenotype, which suggests a discontinuous hair formation in chimeras according to the "all or nothing" principle. The data obtained indicate that the dermal papilla cells of a hair follicle are the sites for the we gene action. During the embryonic development, dermal cells are strongly mixed, which accounts for the lack of the clear-cut transverse stripes of either mutant or normal hair. The mutant gene we is probably responsible for a disrupted induction signal from the dermal papilla towards ectodermal cells of a hair follicle.