Merkel cells are innervated mechanosensory cells responsible for light-touch sensations. In murine dorsal skin, Merkel cells are located in touch domes and found in the epidermis around primary hairs. While it has been shown that Merkel cells are skin epithelial cells, the progenitor cell population that gives rise to these cells is unknown. Here, we show that during embryogenesis, SOX9-positive (+) cells inside hair follicles, which were previously known to give rise to hair follicle stem cells (HFSCs) and cells of the hair follicle lineage, can also give rise to Merkel Cells. Interestingly, while SOX9 is critical for HFSC specification, it is dispensable for Merkel cell formation. Conversely, FGFR2 is required for Merkel cell formation but is dispensable for HFSCs. Together, our studies uncover SOX9(+) cells as precursors of Merkel cells and show the requirement for FGFR2-mediated epithelial signalling in Merkel cell specification.