Here, we studied how epithelial energy metabolism impacts overall skin development by selectively deleting intraepithelial mtDNA in mice by ablating a key maintenance factor (Tfam(EKO)), which induces loss of function of the electron transport chain (ETC). Quantitative (immuno)histomorphometry demonstrated that Tfam(EKO) mice showed significantly reduced hair follicle (HF) density and morphogenesis, fewer intrafollicular keratin15+ epithelial progenitor cells, increased apoptosis, and reduced proliferation. Tfam(EKO) mice also displayed premature entry into (aborted) HF cycling by apoptosis-driven HF regression (catagen). Ultrastructurally, Tfam(EKO) mice exhibited severe HF dystrophy, pigmentary abnormalities, and telogen-like condensed dermal papillae. Epithelial HF progenitor cell differentiation (Plet1, Lrig1 Lef1, and β-catenin), sebaceous gland development (adipophilin, Scd1, and oil red), and key mediators/markers of epithelial-mesenchymal interactions during skin morphogenesis (NCAM, versican, and alkaline phosphatase) were all severely altered in Tfam(EKO) mice. Moreover, the number of mast cells, major histocompatibility complex class II+, or CD11b+ immunocytes in the skin mesenchyme was increased, and essentially no subcutis developed. Therefore, in contrast to their epidermal counterparts, pilosebaceous unit stem cells depend on a functional ETC. Most importantly, our findings point toward a frontier in skin biology: the coupling of HF keratinocyte mitochondrial function with the epithelial-mesenchymal interactions that drive overall development of the skin and its appendages.