The transcription factor Sox21 is expressed in the epithelium of developing teeth. The present study aimed to determine the role of Sox21 in tooth development. We found that disruption of Sox21 caused severe enamel hypoplasia, regional osteoporosis, and ectopic hair formation in the gingiva in Sox21 knockout incisors. Differentiation markers were lost in ameloblasts, which formed hair follicles expressing hair keratins. Molecular analysis and chromatin immunoprecipitation sequencing indicated that Sox21 regulated Anapc10, which recognizes substrates for ubiquitination-mediated degradation, and determined dental-epithelial versus hair follicle cell fate. Disruption of either Sox21 or Anapc10 induced Smad3 expression, accelerated TGF-β1-induced promotion of epithelial-to-mesenchymal transition (EMT), and resulted in E-cadherin degradation via Skp2. We conclude that Sox21 disruption in the dental epithelium leads to the formation of a unique microenvironment promoting hair formation and that Sox21 controls dental epithelial differentiation and enamel formation by inhibiting EMT via Anapc10.