Both the production of the hair shaft in anagen and the initiation of a new hair cycle at telogen are the result of reciprocal interactions between the dermal papilla and the overlying epithelial cells. Secreted factors, such as those of the bone morphogenetic protein (BMP) family, play a crucial role in moderating these interactions. Analysis of hair follicles in different stages of the hair cycle showed that BMP signalling was only active during anagen and again during telogen. During catagen, no BMP signalling occurred in the dermal papilla. ID3, a gene expressed in the dermal papilla of both vibrissa and pelage follicles, is a BMP target, and as such, we found that ID3 was expressed from the earliest stages of morphogenesis. During the hair cycle, ID3 was only expressed in the dermal papilla at middle anagen and telogen. To test the significance of ID3 expression in the dermal papilla, we cultured dermal papilla cells and found that ID3 expression fell significantly after a single passage. ID3 expression was returned to in vivo levels in low- and high-passage cells by culturing to high confluence or by the addition of BMP4. These studies reinforce the requirement for active BMP signalling and cell-cell contacts in the dermal papilla during specific stages in the hair cycle.