The identification of intestinal stem cells as well as their malignant counterparts, colon cancer stem cells, has undergone rapid development in recent years. Under physiological conditions, intestinal homeostasis is a carefully balanced and efficient interplay between stem cells, their progeny and the microenvironment. These interactions regulate the astonishingly rapid renewal of the intestinal epithelial layer, which consequently puts us at serious risk of developing cancer. Here we highlight the microenvironment-derived signals that regulate stem-cell fate and epithelial differentiation. As our understanding of normal intestinal crypt homeostasis grows, these developments may point towards new insights into the origin of cancer and the maintenance and regulation of cancer stem cells.