We previously showed that cultured rat dermal papilla cells (DPCs) retain their hair-inducing capacity on afollicular epidermal cell (EPCs). Here, we examined the hair growth-inducing capacity of differently subcultured DPCs by transplanting them, along with rat EPCs, onto the backs of nude mice (graft chamber assay). DPCs at passage (p) 6 (DPCs(p6) or, more generally, low-passage DPCs) induced hair formation. However, DPCs(p>30) (high-passage DPCs) had no such activity and induced only subepidermal hair follicles (HFs) that were not encapsulated by the dermal sheath (DS). Thus, we examined the effect of DS cells (DSCs(p=1)) on the ability of DPCs(p=60) to induce hair growth by testing a mixture of these two cell types (cotransplant) in the graft chamber assay, in which DSCs(p=1) and DPCs(p=60) were labeled with enhanced green fluorescent protein (EGFP) and 1,1-dioctadecyl-3,3,3,3-tetramethylindocarbocyanine perchlorate (DiI), respectively. These cotransplants generated hairs as actively as did DPCs(p=6) transplants. Their HFs were encapsulated with EGFP(+)-DS and had DPs consisting largely of EGFP(+)-DPCs (47%) and DiI(+)-DPCs (43%), indicating a major contribution of DSC(p=1)-derived DPCs to HF induction. In addition, the results of in vitro coculture of DPCs(p=60) and DSCs(p=1) suggest that high-passage DPCs stimulate the expression of certain trichogenic genes in DSCs.