Hair follicle development serves as an excellent model to study control of organ morphogenesis. Three specific isoforms of TGF-β exist which exhibit a distinct pattern of expression during hair follicle morphogenesis. To clarify the still elusive role of these factors in hair follicle development, we have used a combined genetic and functional approach: analysis of hair follicle development in mice with disruptions of the TGF-β1, 2, and 3 genes was coupled with a direct functional test of the effect of added purified factors on fetal hair follicle development in skin organ cultures. TGF-β2 null mice exhibited a profound delay of hair follicle morphogenesis, with a 50% reduced number of hair follicles. In contrast to hair follicle development, growth and differentiation of interfollicular keratinocytes proceeded unimpaired. Unlike TGF-β2−/− mice, mice with a disruption of the TGF-β1 gene showed slightly advanced hair follicle formation, while lack of the TGF-β3 gene did not have any effects. Treatment of wild-type, embryonic skin explants (E14.5 or E15.5) with TGF-β2 protein in either soluble form or slow release beads induced hair follicle development and epidermal hyperplasia, while similar TGF-β1 treatment exerted suppressive effects. Thus, the TGF-β2 isoform plays a specific role, not shared by the other TGF-β isoforms, as an inducer of hair follicle morphogenesis and is both required and sufficient to promote this process.