In adult skin, self-renewing, undifferentiated hair follicle stem cells (HF-SCs) reside within a specialized niche, where they spend prolonged times as a single layer of polarized, quiescent epithelial cells. When sufficient activating signals accumulate, HF-SCs become mobilized to fuel tissue regeneration and hair growth. Here, we show that architectural organization of the HF-SC niche by transcription factor LHX2 plays a critical role in HF-SC behavior. Using genome-wide chromatin and transcriptional profiling of HF-SCs in vivo, we show that LHX2 directly transactivates genes that orchestrate cytoskeletal dynamics and adhesion. Conditional ablation of LHX2 results in gross cellular disorganization and HF-SC polarization within the niche. LHX2 loss leads to a failure to maintain HF-SC quiescence and hair anchoring, as well as progressive transformation of the niche into a sebaceous gland. These findings suggest that niche organization underlies the requirement for LHX2 in hair follicle structure and function.