New hair follicles (HFs) do not form in adult mammalian skin unless epidermal Wnt signalling is activated genetically or within large wounds. To understand the postnatal loss of hair forming ability we monitored HF formation at small circular (2 mm) wound sites. At P2, new HFs formed in back skin, but HF formation was markedly decreased by P21. Neonatal tail also formed wound-associated HFs, albeit in smaller numbers. Postnatal loss of HF neogenesis did not correlate with wound closure rate but with a reduction in Lrig1-positive papillary fibroblasts in wounds. Comparative gene expression profiling of back and tail dermis at P1 and dorsal fibroblasts at P2 and P50 showed a correlation between loss of HF formation and decreased expression of genes associated with proliferation and Wnt/β-catenin activity. Between P2 and P50, fibroblast density declined throughout the dermis and clones of fibroblasts became more dispersed. This correlated with a decline in fibroblasts expressing a TOPGFP reporter of Wnt activation. Surprisingly, between P2 and P50 there was no difference in fibroblast proliferation at the wound site but Wnt signalling was highly upregulated in healing dermis of P21 compared with P2 mice. Postnatal β-catenin ablation in fibroblasts promoted HF regeneration in neonatal and adult mouse wounds, whereas β-catenin activation reduced HF regeneration in neonatal wounds. Our data support a model whereby postnatal loss of hair forming ability in wounds reflects elevated dermal Wnt/β-catenin activation in the wound bed, increasing the abundance of fibroblasts that are unable to induce HF formation.