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A major problem in the prostate cancer field is the inability to distinguish aggressive from indolent disease. This gap in knowledge stems from the fact that the mechanisms which trigger tumorigenesis in the prostate are poorly understood. While specific known genetic alterations are very common in prostate tumors, including Myc upregulation, fusion of Ets genes to androgen-regulated promoters, and loss of Pten, the specific roles of these aberrations in prostate tumor initiation and progression are poorly understood. Likewise, the cell of origin for prostate cancer remains controversial and may be linked to the aggressive potential of the tumor. One important clue about the oncogenic cell of origin is that prostate tumors coexpress basal and luminal protein markers normally restricted to their respective cell types in the prostate epithelia. We hypothesize this coexpression is indicative of the fact that prostate tumors arise as a defect in normal epithelial differentiation. Moreover, we hypothesize that rare bipotent cells in the prostate, which can give rise to basal or luminal cells, are particularly sensitive to oncogenic conversion and are a cell of origin for prostate cancer. In support of this hypothesis, many of the pathways involved in prostate differentiation are linked to genes commonly altered in prostate cancer. In this article, we review what is known about important differentiation pathways in the prostate (Myc, p38MAPK, Notch, PI3K/Pten) and how their misregulation in a transiently differentiating bipotent epithelial cell could lead to oncogenesis. Better understanding of normal prostate differentiation will offer new insights into tumor initiation and may help to explain the functional significance of common genetic alterations observed in prostate cancer. Additionally, this understanding could lead to new methods for classifying prostate tumors based on their differentiation status and may aid in identifying more aggressive tumors.