Cultured skin equivalents were constructed by combining keratinocytes, outer root sheath cells or isolated epidermis, in vitro, with a matrix composed of collagen and cultured fibroblasts. When equivalents were grafted on to host animals, the epidermis thickened considerably, and tongues of cells penetrated the dermis, giving the dermal/epidermal junction a deeply sculptured profile. No cutaneous appendages were found in these grafts. We explored the possibility of inducing hair follicles by incorporating ovine hair follicle dermal papillae into constructs composed of an isolated epidermal sheet and a contracted dermal equivalent. In vitro, no morphogenetic changes associated with follicle formation were observed in the recombinants, but when grafted on to nude mice, follicle-like structures were identified. The follicles were large, and had developed adjacent to the epidermis, indicating that the matrix environment of the induced follicles may not have been compatible with the downgrowth of the epidermal plugs normally observed during follicle formation in living skin. Nevertheless, in histological sections, the induced structures displayed many of the morphological characteristics of follicles in vivo, including the production of keratinized hairs. These results indicate that skin equivalents provide a useful model for the study of the chemical and structural features of matrices that facilitate hair follicle development.