Members of the transforming growth factor beta/bone morphogenetic protein (TGF-beta/BMP) family are involved in the control of hair follicle (HF) morphogenesis and cycling. The activities of several members of this family activins and BMP-2, -4, -7, and -11) are controlled by antagonists such as follistatin. Because follistatin-deficient mice show abnormalities in vibrissae development, we explored the role of follistatin and activin in pelage HF development and cycling. We show here that during HF development follistatin mRNA was prominently expressed by hair matrix and outer root sheath keratinocytes as well as by interfollicular epidermal cells, whereas activin betaA mRNA was mainly expressed in dermal papilla cells. Compared with age-matched wild-type controls, both follistatin knockout mice and activin betaA transgenic mice showed a significant retardation of HF morphogenesis. Treatment of wild-type embryonic skin explants with follistatin protein stimulated HF development. This effect was inhibited by addition of recombinant activin A protein. Activin betaA transgenic mice demonstrated retardation of catagen entry, down-regulation of BMP-2, and up-regulation of expression of its antagonist matrix GLA protein. These observations suggest that follistatin and activin interaction plays an important role in both HF development and cycling, possibly in part by regulating expression of BMP-2 and its antagonist.