Using K14deltaNbeta-cateninER transgenic mice, we show that short-term, low-level beta-catenin activation stimulates de novo hair follicle formation from sebaceous glands and interfollicular epidermis, while only sustained, high-level activation induces new follicles from preexisting follicles. The Hedgehog pathway is upregulated by beta-catenin activation, and inhibition of Hedgehog signaling converts the low beta-catenin phenotype to wild-type epidermis and the high phenotype to low. beta-catenin-induced follicles contain clonogenic keratinocytes that express bulge markers; the follicles induce dermal papillae and provide a niche for melanocytes, and they undergo 4OHT-dependent cycles of growth and regression. New follicles induced in interfollicular epidermis are derived from that cellular compartment and not through bulge stem cell migration or division. These results demonstrate the remarkable capacity of adult epidermis to be reprogrammed by titrating beta-catenin and Hedgehog signal strength and establish that cells from interfollicular epidermis can acquire certain characteristics of bulge stem cells.