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Hair follicle morphogenesis is initiated by a dermal signal that induces the development of placodes in the overlying epithelium. To determine whether WNT signals are required for initiation of follicular development, we ectopically expressed Dickkopf 1, a potent diffusible inhibitor of WNT action, in the skin of transgenic mice. This produced a complete failure of placode formation prior to morphological or molecular signs of differentiation, and blocked tooth and mammary gland development before the bud stage. This phenotype indicates that activation of WNT signaling in the skin precedes, and is required for, localized expression of regulatory genes and initiation of hair follicle placode formation.