Well-orchestrated epithelial-mesenchymal interactions are crucial for hair follicle (HF) morphogenesis. In this study, ectodermal precursor cells (EPCs) with the capacity to cross talk with hair-inductive dermal cells were generated from human induced pluripotent stem cells (hiPSCs) and assessed for HF-forming ability in vivo. EPCs derived from three hiPSC lines generated with 4 or 3 factors (POU5F1, SOX2, KLF4 +/- MYC) mostly expressed keratin 18, a marker of epithelial progenitors. When cocultured with human dermal papilla (DP) cells, a 4 factor 201B7 hiPSC-EPC line upregulated follicular keratinocyte (KC) markers more significantly than normal human adult KCs (NHKCs) and other hiPSC-EPC lines. DP cells preferentially increased DP biomarker expression in response to this line. Interestingly, 201B7 hiPSCs were shown to be ectodermal/epithelial prone, and the derived EPCs were putatively in a wingless-type MMTV integration site family (WNT)-activated state. Importantly, co-transplantation of 201B7 hiPSC-EPCs, but not NHKCs, with trichogenic mice dermal cells into immunodeficient mice resulted in HF formation. Human HF stem cell markers were detected in reconstituted HFs; however, a low frequency of human-derived cells implied that hiPSC-EPCs contributed to HF morphogenesis via direct repopulation and non-cell autonomous activities. The current study suggests a, to our knowledge, previously unrecognized advantage of using hiPSCs to enhance epithelial-mesenchymal interactions in HF bioengineering.