Starting with stem cells made from a mouse's gums, they managed to craft skin with multiple layers - as well as hair follicles and sweat glands.
When implanted into a "nude mouse" with a suppressed immune system, it integrated well and sprouted hairs.
Researchers say this success will take 5-10 years to translate into humans.
But eventually, the team hopes their system will lead to perfectly functioning skin that can be grown from the cells of burns victims and transplanted back on to them.
This would be vastly superior to the culturing and grafting techniques that are currently available, which produce skin without many of the the biological components and functionality that we are used to.
The technique could also be adapted to manufacture realistic skin samples that drug or cosmetics companies could use to test their products - instead of using animals.
The findings, reported in the journal Science Advances, have been greeted with enthusiasm by other scientists working in this field.
Takashi Tsuji is the paper's senior author. He said the dream of re-growing personalized organs was beginning to materialize:
"Up until now, artificial skin development has been hampered by the fact that the skin lacked the important organs, such as hair follicles and exocrine glands, which allow the skin to play its important role in regulation.
"With this new technique, we have successfully grown skin that replicates the function of normal tissue.
"We are coming ever closer to the dream of being able to recreate actual organs in the lab for transplantation."
They began their experiments by taking cells from the gums of a mouse and converting them into "induced pluripotent stem cells" or iPSCs.
This is a popular and promising technique in stem cell research, discovered in 2006, which bathes the cells in chemicals to "wind back the clock".
The resulting cells, like those of an embryo, can divide again and again, and be guided down many developmental pathways to become nearly any type of cell in the body.