For most types of cancers, the cell at the origin of tumour initiation is still unknown. Here, we used mouse genetics to identify cells at the origin of basal cell carcinoma (BCC), which is one of the most frequently occurring types of cancer in humans, and can result from the activation of the Hedgehog signalling pathway. Using mice conditionally expressing constitutively active Smoothened mutant (SmoM2), we activated Hedgehog signalling in different cellular compartments of the skin epidermis and determined in which compartments Hedgehog activation induces BCC formation. Activation of SmoM2 in hair follicle bulge stem cells and their transient amplifying progenies did not induce cancer formation, demonstrating that BCC does not originate from bulge stem cells, as previously thought. Using clonal analysis, we found that BCC arises from long-term resident progenitor cells of the interfollicular epidermis and the upper infundibulum. Our studies uncover the cells at the origin of BCC in mice and demonstrate that expression of differentiation markers in tumour cells is not necessarily predictive of the cancer initiating cells.