Skin aging is accompanied by hair loss due to impairments in hair follicle (HF) epithelial progenitor cells and their mesenchymal niche. This inductive mesenchyme, called dermal papilla (DP), undergoes progressive cell loss and eventual miniaturization that contributes to HF pathogenesis. Using laser ablation and fate mapping, we show that HF dermal stem cells (hfDSCs) reconstitute the damaged DP and maintain hair growth, suggesting that hfDSC dysfunction may trigger degeneration of the inductive niche. Fate mapping over 24 months revealed progressive hfDSC depletion, and in vivo clonal analysis of aged hfDSCs showed impaired self-renewal and biased differentiation. Single-cell RNA-seq confirmed hfDSCs as a central precursor, giving rise to divergent mesenchymal trajectories. In aged skin, hfDSCs exhibited senescent-like characteristics, and senescence-associated secretory phenotypes were identified in the aging HF mesenchyme. These results clarify fibroblast dynamics within the HF and suggest that progressive dysfunction within the mesenchymal progenitor pool contributes to age-related hair loss.