Tissue homeostasis requires the balance of growth by cell production and regression through cell loss. In the hair cycle, during follicle regression, the niche traverses the skin through an unknown mechanism to reach the stem cell reservoir and trigger new growth. Here, we identify the dermal sheath that lines the follicle as the key driver of tissue regression and niche relocation through the smooth muscle contractile machinery that generates centripetal constriction force. We reveal that the calcium-calmodulin-myosin light chain kinase pathway controls sheath contraction. When this pathway is blocked, sheath contraction is inhibited, impeding follicle regression and niche relocation. Thus, our study identifies the dermal sheath as smooth muscle that drives follicle regression for reuniting niche and stem cells in order to regenerate tissue structure during homeostasis.