Cancer stem cells (CSCs) have been implicated in the maintenance and progression of several types of cancer. The origin and cellular properties of human CSCs are poorly characterized. Here we show that CSC-like cells can be generated in vitro by oncogenic reprogramming of human somatic cells during neoplastic transformation. We find that in vitro transformation confers stem-cell properties to primary differentiated fibroblasts, including the ability to self-renew and to differentiate along multiple lineages. Tumours induced by transformed fibroblasts are hierarchically organized, and the cells that act as CSCs to initiate and maintain tumour growth are marked by the stage-specific embryonic antigen SSEA-1. Heterogeneous lineages of cancer cells in the bulk of the tumour arise through differentiation of SSEA-1(+) fibroblasts, and differentiation is associated with loss of tumorigenic potential. These findings establish an experimental system to characterize cellular and molecular properties of human CSCs and demonstrate that somatic cells have the potential to de-differentiate and acquire properties of CSCs.