Basonuclin, a zinc-finger protein, is found in stratified squamous epithelia and hair follicles. In the basal keratinocytes of mouse epidermis, basonuclin is detected mainly in the cytoplasm. During the development of murine hair follicles, this protein concentrates in the nuclei of the basal cells that form the primary hair germs. As follicle morphogenesis proceeds, the epithelial cells possessing nuclear basonuclin invade the dermis and surround the follicular papilla. In mature anagen follicles, nuclear basonuclin is principally restricted to the basal layers of the outer root sheath and bulbar matrix; these regions are known to contain cells capable of proliferation, and to lack the features of terminal differentiation. During catagen, the compartment of cells containing nuclear basonuclin regresses, and in telogen, only a small number of these cells remain to form the secondary hair germ at the follicle base. During the next anagen, this basonuclin-containing population expands and regenerates the hair-producing portion of the follicle. It is concluded that in all hair cycles, the transient segment of the follicle originates from germinative cells possessing nuclear basonuclin.