LEF/TCF DNA-binding proteins act in concert with activated beta -catenin, the product of Wnt signaling, to transactivate downstream target genes. To probe the role of activated LEF/TCF transcription factor complexes in hair follicle morphogenesis and differentiation, we engineered mice harboring TOPGAL, a beta -galactosidase gene under the control of a LEF/TCF and beta -catenin inducible promoter. In mice, TOPGAL expression was directly stimulated by a stabilized form of beta -catenin, but was also dependent upon LEF1/TCF3 in skin. During embryogenesis, TOPGAL activation occurred transiently in a subset of LEF1-positive cells of pluripotent ectoderm and underlying mesenchyme. Downgrowth of initiated follicles proceeded in the absence of detectable TOPGAL expression, even though LEF1 was still expressed. While proliferative matrix cells expressed the highest levels of Lef1 mRNAs, LEF1 concentrated in the precursor cells to the hair shaft, where TOPGAL expression was co-induced with hair-specific keratin genes containing LEF/TCF-binding motifs. LEF1 and TOPGAL expression ceased during catagen and telogen, but reappeared at the start of the postnatal hair cycle, concomitant with precortex formation. In contrast to hair shaft precursor cells, postnatal outer root sheath expressed TCF3, but not TOPGAL. TCF3 was also expressed in the putative follicle stem cells, and while TOPGAL was generally silent in this compartment, it was stimulated at the start of the hair cycle in a fashion that appeared to be dependent upon stabilization of beta -catenin. Taken together, our findings demonstrate that LEF1/TCF3 is necessary but not sufficient for TOPGAL activation, revealing the existence of positive and negative regulators of these factors in the skin. Furthermore, our findings unveil the importance of activated LEF/TCF complexes at distinct times in hair development and cycling when changes in cell fate and differentiation commitments take place.