Skin architecture and function depend on diverse populations of epidermal cells and dermal fibroblasts. Reciprocal communication between the epidermis and dermis plays a key role in skin development, homeostasis and repair. While several stem cell populations have been identified in the epidermis with distinct locations and functions, it is now recognised that there is additional heterogeneity within the mesenchymal cells of the dermis. Here, we discuss recent insights into how these distinct cell populations are maintained and coordinated during development, homeostasis, and wound healing. We highlight the importance of the local environment, or niche, in cellular plasticity. We also discuss new mechanisms that have been identified as influencing wound repair and cancer progression.