Why is your woolly bear caterpillar losing its hair?

This really depends on a lot of factors. Depending on what time of year it may be, your woolly bear caterpillar may lose hair and develop threadlike strands which will eventually encase it in a cocoon. Around late Summer, early Autumn your woolly bear caterpillar will emerge and you will have a very beautiful Isabella Tiger Moth. Be sure to let it out so it can go mate! It only has a few days to find love (er...something like it).