Hair follicles cyclically regenerate throughout adult mammalian life, owing to a resident population of epithelial hair follicle stem cells. Stem cell (SC) activity drives bouts of follicle growth, which are periodically interrupted by follicle regression and rest. These phases and the transitions between them are tightly spatiotemporally coordinated by signalling crosstalk between stem/progenitor cells and the various cell types of the microenvironment, or niche. The dermal papilla (DP) is a cluster of specialized mesenchymal cells that have long been recognized for important niche roles in regulating hair follicle SC activation, as well as progenitor proliferation and differentiation during follicle growth. In addition to the DP, the mesenchyme of the murine pelage follicle is also comprised of a follicle‐lining smooth muscle known as the dermal sheath (DS), which has been far less studied than the DP yet may be equally specialized and important for hair cycling. In this review, we define the murine pelage DS in comparison with human DS and discuss recent work that highlights the emergent importance of the DS in the hair follicle SC niche. Last, we examine potential therapeutic applications for the DS in hair regeneration and wound healing.