The skin is the largest organ of the body and is composed of two layers: the overlying epidermis and the underlying dermis. The dermal fibroblasts originate from distinct locations of the embryo and contain the positional identity and patterning information in the skin. The dermal fibroblast progenitors differentiate into various cell types that are fated to perform specific functions such as hair follicle initiation and scar formation during wound healing. Recent studies have revealed the heterogeneity and plasticity of dermal fibroblasts within skin, which has implications for skin disease and tissue engineering. The objective of this review is to frame our current understanding and provide new insights on the origin and differentiation of dermal fibroblasts and their function during cutaneous development and healing. WIREs Dev Biol 2018, 7:e307. doi: 10.1002/wdev.307This article is categorized under: Birth Defects > Organ Anomalies Signaling Pathways > Cell Fate Signaling Adult Stem Cells, Tissue Renewal, and Regeneration > Regeneration Nervous System Development > Vertebrates: Regional Development