Epithelial-mesenchymal interactions are key to skin morphogenesis and homeostasis. We report that maintenance of the hair follicle keratinocyte cell fate is defective in mice with mesenchymal deletion of the CSL/RBP-Jkappa gene, the effector of "canonical" Notch signaling. Hair follicle reconstitution assays demonstrate that this can be attributed to an intrinsic defect of dermal papilla cells. Similar consequences on hair follicle differentiation result from deletion of Wnt5a, a specific dermal papilla signature gene that we found to be under direct Notch/CSL control in these cells. Functional rescue experiments establish Wnt5a as an essential downstream mediator of Notch-CSL signaling, impinging on expression in the keratinocyte compartment of FoxN1, a gene with a key hair follicle regulatory function. Thus, Notch/CSL signaling plays a unique function in control of hair follicle differentiation by the underlying mesenchyme, with Wnt5a signaling and FoxN1 as mediators.