As long as you mix it with a Carrier Oil it should be fine. I've never tried it in my hair, but I do mix one drop with my facial moisturizer. Putting just tea tree alone on your skin/scalp would burn like the dickens!
The "Tea Tree Oil Bible" says:
"Blend 30 drops of pure tea tree oil with 1/4 cup (2 oz, 60 ml) of warmed coconut oil or jojoba oil and massage into the scalp. To remove the massage oil, shampoo with a mixture of 5 drops of tea tree oil and 1 TBS of a neutral pH mild shampoo."
you can also add a few drops to shampoo to help with a flaky scalp or an itchy scalp. Sometimes that helps. Also, i had an oil recipe somewhere that had tea tree, rosemary oils and some carrier oils. It was nice to use after a relaxer to soothe the scalp.
I mixed it with aloe vera gel(the edible kind that you put in the refrigerator after you open it) and clean my scalp with it when I was doing the no-poo routine