In adult skin, each hair follicle contains a reservoir of stem cells (the bulge), which can be mobilized to regenerate the new follicle with each hair cycle and to reepithelialize epidermis during wound repair. Here we report new methods that permit their clonal analyses and engraftment and demonstrate the two defining features of stem cells, namely self-renewal and multipotency. We also show that, within the bulge, there are two distinct populations, one of which maintains basal lamina contact and temporally precedes the other, which is suprabasal and arises only after the start of the first postnatal hair cycle. This spatial distinction endows them with discrete transcriptional programs, but surprisingly, both populations are growth inhibited in the niche but can self-renew in vitro and make epidermis and hair when grafted. These findings suggest that the niche microenvironment imposes intrinsic "stemness" features without restricting the establishment of epithelial polarity and changes in gene expression.