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In hair follicle development, a placode-derived signal is believed to induce formation of the dermal condensation, an essential component of ectodermal organs. However, the identity of this signal is unknown. Furthermore, although induction and patterning of hair follicles are intimately linked, it is not known whether the mesenchymal condensation is necessary for inducing the initial epithelial pattern. Here, we show that fibroblast growth factor 20 (Fgf20) is expressed in hair placodes and is induced by and functions downstream from epithelial ectodysplasin (Eda)/Edar and Wnt/β-Catenin signaling to initiate formation of the underlying dermal condensation. Fgf20 governs formation of primary and secondary dermal condensations in developing hair follicles and subsequent formation of guard, awl, and auchene hairs. Although primary dermal condensations are absent in Fgf20 mutant mice, a regular array of hair placodes is formed, demonstrating that the epithelial patterning process is independent of known histological and molecular markers of underlying mesenchymal patterns during the initial stages of hair follicle development.