A novel function of NF-kappaB in the development of most ectodermal appendages, including two types of murine pelage hair follicles, was detected in a mouse model with suppressed NF-kappaB activity (c(IkappaBalphaDeltaN)). However, the developmental processes regulated by NF-kappaB in hair follicles has remained unknown. Furthermore, the similarity between the phenotypes of c(IkappaBADeltaN) mice and mice deficient in Eda A1 (tabby) or its receptor EdaR (downless) raised the issue of whether in vivo NF-kappaB regulates or is regulated by these novel TNF family members. We now demonstrate that epidermal NF-kappaB activity is first observed in placodes of primary guard hair follicles at day E14.5, and that in vivo NF-kappaB signalling is activated downstream of Eda A1 and EdaR. Importantly, ectopic signals which activate NF-kappaB can also stimulate guard hair placode formation, suggesting a crucial role for NF-kappaB in placode development. In downless and c(IkappaBalphaDeltaN) mice, placodes start to develop, but rapidly abort in the absence of EdaR/NF-kappaB signalling. We show that NF-kappaB activation is essential for induction of Shh and cyclin D1 expression and subsequent placode down growth. However, cyclin D1 induction appears to be indirectly regulated by NF-kappaB, probably via Shh and Wnt. The strongly decreased number of hair follicles observed in c(IkappaBalphaDeltaN) mice compared with tabby mice, indicates that additional signals, such as TROY, must regulate NF-kappaB activity in specific hair follicle subtypes.