The germinal matrix is a region surrounding the dermal papilla at the base of the hair bulb. It contains a population of transit-amplifying matrix cells. It is the site where hair growth and pigmentation occurs. During the active hair growth phase, human hair germinal matrix cells rapidly proliferate and differentiate into cell lineages for all the follicle layers, causing the hair to elongate. Keratinization, the terminal differentiation to stabilize the complex of intermediate filaments and matrix of keratin-associated proteins, then takes place to anchor the hair in the follicle. Hair follicular cells are immunologically preferential and the germinal matrix of the implanted dermal papilla cells have the ability to induce new hair follicle formation, which suggests that it may be possible to treat hair loss using follicular cell implantation.