During development, cell differentiation is accompanied by the progressive loss of pluripotent gene expression and developmental potential, although de‐differentiation in specialized cells can be induced by reprogramming strategies, indicating that transdifferentiation potential is retained in adult cells. The stromal niche provides differentiating cues to epithelial stem cells (SCs), but current evidence is restricted to tissue types within the same developmental germ layer lineage. Anticipating the use of adult SCs for tissue regeneration, we examined if stroma can enforce lineage commitment across germ layer boundaries and promote transdifferentiation of adult epithelial SCs. Here, we report tissue‐specific mesenchyme instructing epithelial cells from a different germ layer origin to express dual phenotypes. Prostatic stroma induced mammary epithelia (or enriched Lin−CD29HICD24+/MOD mammary SCs) to generate glandular epithelia expressing both prostatic and mammary markers such as steroid hormone receptors and transcription factors including Foxa1, Nkx3.1, and GATA‐3. Array data implicated Hh and Wnt pathways in mediating stromal‐epithelial interactions (validated by increased Cyclin D1 expression). Other recombinants of prostatic mesenchyme and skin epithelia, or preputial gland mesenchyme and bladder or esophageal epithelia, showed foci expressing new markers adjacent to the original epithelial differentiation (e.g., sebaceous cells within bladder urothelium), confirming altered lineage specification induced by stroma and evidence of cross‐germ layer transdifferentiation. Thus, stromal cell niche is critical in maintaining (or redirecting) differentiation in adult epithelia. In order to use adult epithelial SCs in regenerative medicine, we must additionally regulate their intrinsic properties to prevent (or enable) transdifferentiation in specified SC niches. STEM CELLS 2009;27:3032–3042