Basal Cell Carcinoma (BCC) is an extremely common skin tumour that relies very heavily on its environment. Despite its importance, little is currently known about the tissue surrounding the BCC or its niche, neither the cellular origin nor the signal mechanisms resulting in its development. By studying the niche we propose that we can both develop better therapeutics and also prevent the establishment of permissive environments for secondary lesion development. We therefore investigated the role of the dermal papilla, a specific type of skin fibroblast, in the BCC niche. The dermal papilla has essential roles in maintaining hair follicle proliferation and we have shown in mice that dominant negative mutation of Sox18 inhibits the differentiation of dermal papilla. Using this model we have combined dominant negative Sox18 mutation with a murine BCC model, and have deleted dermal papilla from the BCC niche. Interestingly, deletion of the dermal papilla lineage promotes BCC development, along with increased epidermal proliferation and progenitor markers such as Sox9. These results indicate that the dermal papilla negatively regulates BCC development. Our hair follicle studies also indicate that loss of associated dermal papilla induces exit from the stem cell compartment in hair follicles and therefore increased BCC development after Sox18 dominant negative mutation is likely due to the promotion of the epidermal progenitor compartment. This study gives precedence that modulation of the BCC niche can affect tumour development and furthermore induction of DP-like signalling in the BCC niche may represent a new avenue for investigation in developing BCC therapeutics.