Green fluorescent protein (GFP)-expressing wild-type, and nontransgenic mouse vibrissa follicle cells were cultured and implanted to mouse ears and footpads. Dermal papiller (DP)-derived cells and cells from the peribulbar dermal sheath "cup" (DSC) induced new hair follicles in both implanted ears and footpads, while nonbulbar dermal sheath cells did not. Confocal microscopy revealed that GFP-expressing DP and DSC cells induced hair growth associated with the formation of DP exclusively comprised of fluorescent cells. In mouse ears, but not footpads, fluorescent DP and DSC cells could also be identified in DP along with nonfluorescent cells. DSC cells were characterized in vivo and in vitro by low alkaline phosphatase activity in contrast to high alkaline phosphatase in DP cells. The results indicate transplanted DP and DSC cells were equally capable of DP formation and hair follicle induction. This suggests the DP and peribulbar DSC may be functionally similar. In addition to observing papillae exclusively composed of GFP-expressing cells, DP and DSC cells may also have combined with resident cells to form papillae composed of implanted GFP-expressing cells and host-derived non-GFP-expressing cells. Alkaline phosphatase expression may be utilized as a simple marker to identify hair follicle mesenchyme derived cells with hair follicle inductive abilities.