A significant proportion of human prostate cancers carry a chromosomal rearrangement resulting in the overexpression of the ETS transcription factor, ERG; however, the functional significance of this event is poorly understood. We report here that up-regulation of ERG transcript is sufficient for the initiation of prostate neoplasia. In agreement with measurements of ERG transcripts, we found that ERG protein is expressed in neoplastic human prostate epithelium. Overexpression of ERG in prostate cell lines increased cell invasion. Moreover, targeted expression of this transcript in vivo in luminal prostate epithelial cells of transgenic mice results in initiation of prostate neoplasia observed as the development of focal precancerous prostatic intraepithelial neoplasia (PIN). Similar to human cancers, luminal epithelial cells in these PIN lesions displace diminishing in numbers basal epithelial cells and establish direct contact with the stromal cell compartment. Loss of basal cells is considered to be one of the critical hallmarks of human prostate cancer; however, the mechanisms responsible for this event were unknown. We propose that up-regulation of ERG in human prostate cancer activates cell invasion programs that subsequently displace basal cells by neoplastic epithelium. Our data demonstrate that ERG plays an important causal role in the transformation of prostate epithelium and should be considered as a target for prevention or early therapeutic intervention.