Hair follicles repeatedly cycle through growth (anagen), regression (catagen), and resting (telogen) phases. Although the signaling molecules involved in the anagen and anagen-catagen transition have been studied extensively, the signaling that controls telogen is only partly understood. Here we show that fibroblast growth factor (Fgf)18 is expressed in a hair stem cell niche throughout telogen, and that it regulates the hair cycle through the non-growth phases. When the Fgf18 gene is conditionally knocked out in keratin 5-positive epithelial cells in mice, telogen becomes very short, giving rise to a strikingly rapid succession of hair cycles. In wild-type mice, hair follicle growth during anagen is strongly suppressed by local delivery of FGF18 protein. Our results demonstrate that epithelial FGF18 signaling and its reduction in the milieu of hair stem cells are crucial for the maintenance of resting and growth phase, respectively.