BackgroundCashmere, named as “soft gold”, derives from the secondary hair follicles (SHFs) of cashmere goat which is vital to Northwest China’s economy. The cytodifferentiation stage (E120), mirroring the complete hair follicle (HF) structure of adult goats and marking a critical phase in SHF development. Therefore, this study aims to enhance the understanding of SHF development and its impact on fiber quality, informing breeding strategies.ResultsFrom the scRNA-seq data analysis, the intricate processes and transcriptional dynamics of inner layer cell differentiation of HFs were unveiled in this study. we identified nine cell populations during cytodifferentiation and key structures such as the hair shaft and inner root sheath. And we discovered three main inner layer lineages and seven subpopulations, clarifying their roles in specialization and signaling. Pseudotime mapping analysis showed cell evolution from early stage to mature stages marked by unique gene expressions, and the intermediate stage on the differentiation of each lineage was revealed. The identification and spatial localization of specific transcription factors, such as GATA3, LEF1 and PRDM1, as well as keratin genes highlight regulatory pathways involved in HF development, which was further validated by immunofluorescence. These findings suggested the potential strategies to improve fiber quality, and the discovery of diverse cell types and their developmental molecular mechanisms, particularly in this species-specific context, offered a nuanced view of the regulatory mechanisms driving HF development in cashmere goats.ConclusionOverall, these findings provide a systematic molecular atlas of skin, defining three major branches and cell states of inner layer cells of HF, and determining how the branch-specific transcription factors, keratins, and signals coordinate HF morphogenesis during cytodifferentiation stage. This research not only advances skin tissue research in goats but also holds broader implications for the understanding of HF regeneration and development across various species.