The prostate epithelial lineage hierarchy and the cellular origin for prostate cancer remain inadequately defined. Using a lineage-tracing approach, we show that adult rodent prostate basal and luminal cells are independently self-sustained in vivo. Disrupting the tumor suppressor Pten in either lineage led to prostate cancer initiation. However, the cellular composition and onset dynamics of the resulting tumors are distinctive. Prostate luminal cells are more responsive to Pten null-induced mitogenic signaling. In contrast, basal cells are resistant to direct transformation. Instead, loss of Pten activity induces the capability of basal cells to differentiate into transformation-competent luminal cells. Our study suggests that deregulation of epithelial differentiation is a critical step for the initiation of prostate cancers of basal cell origin.