Bone morphogenetic protein (BMP) signaling is involved in the regulation of a large variety of developmental programs, including those controlling organ sizes. Here, we show that transgenic (TG) mice overexpressing the BMP antagonist noggin (promoter, K5) are characterized by a marked increase in size of anagen hair follicles (HFs) and by the replacement of zig-zag and auchen hairs by awl-like hairs, compared with the age-matched WT controls. Markedly enlarged anagen HFs of TG mice show increased proliferation in the matrix and an increased number of hair cortex and medulla cells compared with WT HFs. Microarray and real-time PCR analyses of the laser-captured hair matrix cells show a strong decrease in expression of Cdk inhibitor p27^Kip1 and increased expression of selected cyclins in TG vs. WT mice. Similar to TG mice, p27^Kip1 knockout mice also show an increased size of anagen HFs associated with increased cell proliferation in the hair bulb. Primary epidermal keratinocytes (KC) from TG mice exhibit significantly increased proliferation and decreased p27^Kip1 expression, compared with WT KC. Alternatively, activation of BMP signaling in HaCaT KC induces growth arrest, stimulates p27^Kip1 expression, and positively regulates p27^Kip1 promoter activity, thus further supporting a role of p27^Kip1 in mediating the effects of BMP signaling on HF size. These data suggest that BMP signaling plays an important role in regulating cell proliferation and controls the size of anagen HFs by modulating the expression of cell-cycle-associated genes in hair matrix KC.