Hair follicles (HFs) are regenerative mini-organs that offer a highly informative model system to study the regulatory mechanisms of hair follicle stem cells (hfSCs) behavior. Our previously published findings (JCB 2003, PNAS 2007, PNAS 2013) demonstrated that inhibition of Bone morphogenetic protein (BMP) signaling is essential for promoting the activation of resting bulge SCs to proliferation and SC progeny to properly differentiate into hairs. However, there is still a gap in our scientific knowledge regarding precisely how BMP signaling relays the signals from the BMP receptor and whether it is mediated by the canonical or non-canonical pathway. We addressed this question by examining the role of two components of BMP signaling, Smad1 and Smad5, during hair development and postnatal hair cycling in skin in vivo. We demonstrated that BMP signaling operates predominantly via canonical pathway components and operates differently during development and in mature adult skin causing different phenotypic outcomes. We discovered that Smad-deficient HFs could not form a mature hfSCs population. We showed that maturation of bulge SCs by active canonical BMP signaling through pSmad1 and pSmad5 is a critical event in hair development to promote pSmad8 activity in postnatal HFs. Thus, when we deleted Smad1 & Smad5 in adult hfSCs once HFs had fully matured, we found that growing Smad-deficient HFs could generate visible hair at the skin surface. Collectively, our findings suggest a pivotal role for BMP-Smad signaling demonstrating distinguished non-overlapping functions of pSmad8 with pSmad1 and pSmad5 in hfSCs regulation and HF development but a redundant role in adult HF regeneration and hair shaft production.