Melanocyte stem cells in the bulge area of hair follicles are responsible for hair pigmentation, and defects in them cause hair graying. Here we describe the process of melanocyte stem cell entry into the quiescent state and show that niche-derived transforming growth factor beta (TGF-beta) signaling plays important roles in this process. In vitro, TGF-beta not only induces reversible cell cycle arrest, but also promotes melanocyte immaturity by downregulating MITF, the master transcriptional regulator of melanocyte differentiation, and its downstream melanogenic genes. In vivo, TGF-beta signaling is activated in melanocyte stem cells when they reenter the quiescent noncycling state during the hair cycle and this process requires Bcl2 for cell survival. Furthermore, targeted TGF-beta type II receptor (TGFbRII) deficiency in the melanocyte lineage causes incomplete maintenance of melanocyte stem cell immaturity and results in mild hair graying. These data demonstrate that the TGF-beta signaling pathway is one of the key niche factors that regulate melanocyte stem cell immaturity and quiescence.