Although DNA hypermethylation within promoter CpG islands is highly correlated with tumorigenesis, it has not been established whether DNA hypermethylation within a specific tumor suppressor gene (TSG) is sufficient to fully transform a somatic stem cell. In this study, we addressed this question using a novel targeted DNA methylation technique to methylate the promoters of HIC1 and RassF1A, two well-established TSGs, along with a two-component reporter system to visualize successful targeting of human bone marrow-derived mesenchymal stem cells (MSC) as a model cell system. MSCs harboring targeted promoter methylations of HIC1/RassF1A displayed several features of cancer stem/initiating cells including loss of anchorage dependence, increased colony formation capability, drug resistance, and pluripotency. Notably, inoculation of immunodeficient mice with low numbers of targeted MSC resulted in tumor formation, and subsequent serial xenotransplantation and immunohistochemistry confirmed the presence of stem cell markers and MSC lineage in tumor xenografts. Consistent with the expected mechanism of TSG hypermethylation, treatment of the targeted MSC with a DNA methyltransferase inhibitor reversed their tumorigenic phenotype. To our knowledge, this is the first direct demonstration that aberrant TSG hypermethylation is sufficient to transform a somatic stem cell into a fully malignant cell with cancer stem/initiating properties. Cancer Res; 71(13); 4653-63. Ó2011 AACR.