Protein kinase Cι (PKCι) is an oncogene required for maintenance of the transformed phenotype of non–small cell lung cancer cells. However, the role of PKCι in lung tumor development has not been investigated. To address this question, we established a mouse model in which oncogenic Kras^G12D is activated by Cre-mediated recombination in the lung with or without simultaneous genetic loss of the mouse PKCι gene, Prkci. Genetic loss of Prkci dramatically inhibits Kras-initiated hyperplasia and subsequent lung tumor formation in vivo. This effect correlates with a defect in the ability of Prkci-deficient bronchioalveolar stem cells to undergo Kras-mediated expansion and morphologic transformation in vitro and in vivo. Furthermore, the small molecule PKCι inhibitor aurothiomalate inhibits Kras-mediated bronchioalveolar stem cell expansion and lung tumor growth in vivo. Thus, Prkci is required for oncogene-induced expansion and transformation of tumor-initiating lung stem cells. Furthermore, aurothiomalate is an effective antitumor agent that targets the tumor-initiating stem cell niche in vivo. These data have important implications for PKCι as a therapeutic target and for the clinical use of aurothiomalate for lung cancer treatment. [Cancer Res 2009;69(19):7603–11]