Stem cell–based therapies are expected to have a great impact on the medicine of the 21st century. The focus of dermatologic stem cell research is on the epidermis and the hair follicle. In contrast, the characterization of stem cells in the mesenchymal compartments of the skin has largely escaped the attention of the dermatologic community. This is surprising because the dermis may represent a larger reservoir for adult stem cells than the epidermis and the hair follicle together. In 2001, mesenchymal stem cells residing within the dermis were first isolated. They have the capacity to differentiate into adipocytes, smooth muscle cells, osteocytes, chondrocytes, and even neurons and glia as well as hematopoietic cells of myeloid and erythroid lineage. The perifollicular connective tissue sheath and the papilla crystallize as the likely anatomic niche for these multipotent dermal cells. These previously unidentified mesenchymal stem cells have the potential to function as an easily accessible, autologous source for future stem cell transplantation. Potential therapeutic applications include the treatment of acute and steroid-refractory graft-versus-host disease, systemic lupus erythematosus resistant to currently available therapies, or idiopathic pulmonary fibrosis. The neuronal differentiation potential of cutaneous mesenchymal stem cells may also be exploited in the treatment of neurodegenerative disorders. The most immediate impact can be expected in the field of wound healing. In line with the cancer stem cell hypothesis, the potential contributions to dermatopathology include a conceptual understanding of mesenchymal skin-based neoplasms as evolving from a genetically altered dermal stem cell clone.