The process generated new human hair in five of the seven animals on which it was tested, according to the study published in the Proceedings of the National Academy of Sciences.
The approach goes beyond the current strategies of transplanting hair from one part of the scalp to another, or using medication to slow hair loss or stimulate the growth of existing hair, said lead researcher Angela Christiano, professor of genetics and development at Columbia University Medical Center.
"Our method, in contrast, has the potential to actually grow new follicles using a patient's own cells," she said.
Researchers hope the technique -- once it is tested more thoroughly and expanded into human trials -- could be useful for women with hair loss, men in the early stages of male pattern baldness, and burn victims who need both skin and follicles.
The breakthrough came when researchers tried a new way to foster growth via the dermal papilla cells, which give rise to hair follicles.
In the past, these papilla would not thrive in 2D cultures in a lab dish.
So taking inspiration from experiments on lab rats, whose papillae can be readily transplanted, they cloned human papillae in a 3-D tissue culture.
The tissue came from discarded infant foreskins obtained through circumcision procedures at Columbia University Medical Center.
Infant foreskin was chosen "because it would challenge the human dermal papillae not just to contribute to hair follicles within the skin, but rather, to fully reprogram the recipient epidermis to a follicular fate," said the study.
When scientists grafted the newly grown human skin tissue complete with donated human papillae, they saw hair growth in five of seven lab animals.
The hair matched the human donor DNA and lasted at least six weeks.
Co-author Colin Jahoda, professor of stem cell sciences at Durham University, England, said the team is hopeful that clinical trials could begin soon.
"We also think that this study is an important step toward the goal of creating a replacement skin that contains hair follicles for use with, for example, burn patients," he said.