Despite the remarkable regenerative capacity of mammalian skin, an adult dermal stem cell has not yet been identified. Here, we investigated whether skin-derived precursors (SKPs) might fulfill such a role. We show that SKPs derive from Sox2⁺ hair follicle dermal cells and that these two cell populations are similar with regard to their transcriptome and functional properties. Both clonal SKPs and endogenous Sox2⁺ cells induce hair morphogenesis, differentiate into dermal cell types, and home to a hair follicle niche upon transplantation. Moreover, hair follicle-derived SKPs self-renew, maintain their multipotency, and serially reconstitute hair follicles. Finally, grafting experiments show that follicle-associated dermal cells move out of their niche to contribute cells for dermal maintenance and wound-healing. Thus, SKPs derive from Sox2⁺ follicle-associated dermal precursors and display functional properties predicted of a dermal stem cell, contributing to dermal maintenance, wound-healing, and hair follicle morphogenesis.