Differentiation of epidermal cells is important for plants because they are in direct contact with the environment. Rhizoids are multicellular filaments that develop from the epidermis in a wide range of plants, including pteridophytes, bryophytes, and green algae; they have similar functions to root hairs in vascular plants in that they support the plant body and are involved in water and nutrient absorption. In this study, we examined mechanisms underlying rhizoid development in the moss, Physcomitrella patens, which is the only land plant in which high-frequency gene targeting is possible. We found that rhizoid development can be split into two processes: determination and differentiation. Two types of rhizoids with distinct developmental patterns (basal and mid-stem rhizoids) were recognized. The development of basal rhizoids from epidermal cells was induced by exogenous auxin, while that of mid-stem rhizoids required an unknown factor in addition to exogenous auxin. Once an epidermal cell had acquired a rhizoid initial cell fate, expression of the homeodomain-leucine zipper I gene Pphb7 was induced. Analysis of Pphb7 disruptant lines showed that Pphb7 affects the induction of pigmentation and the increase in the number and size of chloroplasts, but not the position or number of rhizoids. This is the first report on the involvement of a homeodomain-leucine zipper I gene in epidermal cell differentiation.