The molecular pathogenesis of the myeloid leukemias that frequently occur in patients with Fanconi anemia (FA) is not well defined. Hematopoietic stem cells bearing inactivating mutations of FA complementation group C (FANCC) are genetically unstable and hypersensitive to apoptotic cytokine cues including IFN-γ and TNF-α, but neoplastic stem cell clones that arise frequently in vivo are resistant to these cytokines. Reasoning that the combination of genetic instability and cytokine hypersensitivity might create an environment supporting the emergence of leukemic stem cells, we tested the leukemia-promoting effects of TNF-α in murine stem cells. TNF-α exposure initially profoundly inhibited the growth of Fancc–/–stem cells. However, longer-term exposure of these cells promoted the outgrowth of cytogenetically abnormal clones that, upon transplantation into congenic WT mice, led to acute myelogenous leukemia. TNF-α induced ROS-dependent genetic instability in Fancc–/–but not in WT cells. The leukemic clones were TNF-α resistant but retained their characteristic hypersensitivity to mitomycin C and exhibited high levels of chromosomal instability. Expression of FANCC cDNA in Fancc–/–stem cells protected them from TNF-α–induced clonal evolution. We conclude that TNF-α exposure creates an environment in which somatically mutated preleukemic stem cell clones are selected and from which unaltered TNF-α–hypersensitive Fancc–/–stem cells are purged.