Melanocytes sustain a lifelong proliferative potential, but a stem cell reservoir in glabrous skin has not yet been found. Here, we show that multipotent dermal stem cells isolated from human foreskins lacking hair follicles are able to home to the epidermis to differentiate into melanocytes. These dermal stem cells, grown as three-dimensional spheres, displayed a capacity for self-renewal and expressed NGFRp75, nestin and OCT4, but not melanocyte markers. In addition, cells derived from single-cell clones were able to differentiate into multiple lineages including melanocytes. In a three-dimensional skin equivalent model, sphere-forming cells differentiated into HMB45-positive melanocytes, which migrated from the dermis to the epidermis and aligned singly among the basal layer keratinocytes in a similar fashion to pigmented melanocytes isolated from the epidermis. The dermal stem cells were negative for E-cadherin and N-cadherin, whereas they acquired E-cadherin expression and lost NGFRp75 expression upon contact with epidermal keratinocytes. These results demonstrate that stem cells in the dermis of human skin with neural-crest-like characteristics can become mature epidermal melanocytes. This finding could significantly change our understanding of the etiological factors in melanocyte transformation and pigmentation disorders; specifically, that early epigenetic or genetic alterations leading to transformation may take place in the dermis rather than in the epidermis.