The clinicopathological features of the scarring alopecia of discoid lupus erythematosus (DLE) were studied. Scarring alopecia was present in 34% of 89 patients with DLE and was associated with a prolonged disease course. More than half these patients had scalp involvement at the onset of the disease. There was a significant reduction in size of sebaceous glands in affected scalp. Perifollicular lymphocytic inflammation was maximal around the mid-follicle at the level of the sebaceous gland, which seems to be an important functional level in the follicle. There are changes in the expression of the matrix molecules, the proteoglycans, in the connective tissue sheath and the keratin intermediate filaments in the outer root sheath cells at this level in normal scalp and in diseased scalp. Loss of a population of mid-follicular stem cells may be important in the pathogenesis of scarring alopecia in DLE.