In epithelial tissues, the lineage relationship between normal progenitor cells and cell type(s) of origin for cancer has been poorly understood. Here we show that a known regulator of prostate epithelial differentiation, the homeobox gene Nkx3-1, marks a stem cell population that functions during prostate regeneration. Genetic lineage-marking demonstrates that rare luminal cells that express Nkx3-1 in the absence of testicular androgens (castration-resistant Nkx3-1-expressing cells, CARNs) are bipotential and can self-renew in vivo, and single-cell transplantation assays show that CARNs can reconstitute prostate ducts in renal grafts. Functional assays of Nkx3-1 mutant mice in serial prostate regeneration suggest that Nkx3-1 is required for stem cell maintenance. Furthermore, targeted deletion of the Pten tumour suppressor gene in CARNs results in rapid carcinoma formation after androgen-mediated regeneration. These observations indicate that CARNs represent a new luminal stem cell population that is an efficient target for oncogenic transformation in prostate cancer. A rare luminal stem cell population, termed CARN cells, has been identified in the mouse prostate. CARN cells give rise to both luminal and basal cells during prostate tissue regeneration induced by androgen depletion. As well as providing self-renewal potential, these cells act as a target for oncogenic transformation: deletion of the tumour suppressor gene Pten in CARN cells leads to tumour development in the regenerating prostate. The ability of these cells to survive in the absence of androgens raises the possibility that androgen-independent cancer can arise from this population and that CARN cells might provide a route to therapeutic targeting of cells conferring the malignant features of aggressive prostate cancer. A known regulator of prostate epithelial differentiation, Nkx3-1, is shown here to mark a stem cell population that functions during prostate regeneration. Furthermore, in mice in which the Pten tumour suppressor gene is deleted in a group of rare cells that express Nkx3-1 in the absence of testicular androgens, termed CARN cells, there is rapid carcinoma formation after andogen-mediated regeneration. These observations indicate that prostate cancer can originate in CARN cells.