Notch signaling plays an important role in hair follicle maintenance, and it has been suggested that Notch is also required for follicular fate selection by adult hair follicle stem cells in the bulge. Here we demonstrate that, on the contrary, Notch signaling in bi-potential bulge stem cells or their uncommitted descendents acts to suppress the epidermal fate choice, thus ensuring follicular fate selection. To examine the role of Notch signaling in adult hair follicle stem cells, we used a Krt1-15-CrePR1 transgenic mouse line to delete Rbpj or all Notch proteins specifically in the bulge stem cells. We conclusively determined that in the absence of Notch signaling,bulge stem cell descendents retain their capacity to execute the follicular differentiation program but fail to maintain it owing to their genetic deficiency. The defect in terminal differentiation caused the diversion of Notch-deficient hair follicles to epidermal cysts, and the presence of wild-type cells could not prevent this conversion. Importantly, our analysis revealed that a functional Notch signaling pathway was required to block bulge stem cells from migrating into, and assuming the fate of, interfollicular epidermis. Taken together, our findings yield detailed insight into the function of Notch signaling in hair follicle stem cells and reveal the mechanism of the replacement of Notch-deficient adult hair follicles by epidermal cysts.