Human melanocytes have been extensively studied, but a melanocyte stem cell reservoir in glabrous skin has not yet been found. Human dermis contains cells that are nonpigmented but can differentiate to several different cell types. We have recently shown that multipotent dermal stem cells isolated from human neonatal foreskins are able to differentiate to multiple cell lineages, including pigmented melanocytes. The dermal stem cells grow as three-dimensional spheres in human embryonic stem cell medium and express some neural crest stem cell and embryonic stem cell markers. Melanocytes derived from dermal stem cells express melanocytic markers and act the same way as mature epidermal melanocytes. Dermal spheres, embedded in the reconstructed dermis consisting of collagen with fibroblasts, can migrate to the basement membrane, where they become pigmented in the same way as epidermal melanocytes suggesting that dermal stem cells can give rise to epidermal melanocytes.