The distribution of Merkel cells in human fetal hair follicles was studied using whole mounts of separated epidermis with attached hair follicles. The technique had the advantage of enabling the elucidation of the spatial relationships of Merkel cells with other cells in the skin. In a 16-week-old fetus the hair anlagen had formed one or two epithelial swellings of variable size. In a 17-week-old fetus sebaceous glands and the bulge of the hair follicle were recognizable and immunoreactive Merkel cells were present in the bulge and surrounding the acrotrichium (intraepidermal follicular canal). In a 20-week-old fetus the sebaceous gland and bulge were well formed and immunoreactive Merkel cells were concentrated in the bulge and infundibulum. In vertical sections of a 20-week-old fetus immunoreactive Merkel cells were also situated in the vicinity of the bulge. Arrector pili muscles were first observable in a 24-week-old fetus being weakly stained with anti-desmin antibody. In a 24-week-old fetus, nerves were also stained within the arrector pili muscles with S-100 protein antibody. In the presumptive arrector pili muscle immunoreactivity for S-100 protein developed before or at the same time as immunoreactivity for desmin. Merkel cells or their products in the bulge may serve as attractants for the growing arrector pili muscle which contain peripheral nerves. Following our report that dermal Merkel cells influence the formation of the dermal nerve plexus, perifollicular Merkel cells near the bulge may also play an inductive and growth-stimulative role for the perifollicular nerve plexus.