By cloning human skin cells which control the growth of new follicles, the researchers demonstrated for the first time that it is possible to create new tissue capable of sprouting hair.
Researchers from Durham University, and Columbia University Medical Centre in New York, took samples of dermal papilla cells from seven donors before cloning them in the laboratory.
They then inserted them in between layers of human skin which had been grafted onto the backs of mice, and in five of seven cases they produced new hair follicles.
The technique, described as "ground-breaking" by independent experts, is the first to induce the growth of new hair follicles in cells, rather than redistribute hair from one part of the scalp to another.
Although the approach has yet to be tested on human patients, the scientists said they expected to begin clinical trials in the "near future".
As well as men embarrassed by natural hair loss, the technique could transform treatment options for women with hair loss, the researchers said.
The best current treatment option for women with hair loss is a transplant, but one common obstacle is a lack of available donor hair.
The study, published in the Proceedings of the National Academy of Sciences journal, could also be an "important step" in developing replacement skin with hair follicles for burn patients, the scientists claimed.
Experiments using rat cells more than 40 years ago had previously suggested that the new technique was possible, but scientists have until now been unable to replicate the work in humans.
The major obstacle has been the fact that human dermal papilla cells do not clump together as easily as the rodent equivalent when grown in the lab, meaning they do not create a natural "tissue environment".
To overcome the problem, researchers grew the cells in a 3D culture which encouraged them to form in clumps and stimulated the growth of new follicles.
The new tissue was grafted in between the dermis and epidermis layers of human foreskin and the whole structure was grafted onto the backs of mice.
Six weeks later, new hair follicles had appeared in five of the seven samples, which were a genetic match for the donors. In two cases, unpigmented hair shafts were found protruding from the skin.
Study co-author Professor Colin Jahoda, of Durham University, said: “Ultimately we 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.”
Dr Angela M Christiano, of Columbia University, added that the research “has the potential to transform the medical treatment of hair loss”.
“Current hair-loss medications tend to slow the loss of hair follicles or potentially stimulate the growth of existing hairs, but they do not create new hair follicles," she explained. "Neither do conventional hair transplants, which relocate a set number of hairs from the back of the scalp to the front.
“Our method, in contrast, has the potential to actually grow new follicles using a patient’s own cells. This could greatly expand the utility of hair restoration surgery to women and to younger patients."
Prof Sheila MacNeil, Professor of Tissue Engineering at the University of Sheffield, who was not involved in the study, added: “This is a really useful piece of information showing that if attention is paid to keeping human dermal papilla cells together in sufficiently high numbers then they can act to send a signal to ‘grow hair’ when transplanted into human skin grafted onto mice as a test bed model.