One of the most contentious issues in biology today concerns the existence of stem cell plasticity. The term “plasticity” refers to the capacity of tissue-derived stem cells to exhibit a phenotypic potential that extends beyond the differentiated cell phenotypes of their resident tissue. Although evidence of stem cell plasticity has been reported by multiple laboratories, other scientists have not found the data persuasive and have remained skeptical about these new findings. This review will provide an overview of the stem cell plasticity controversy. We will examine many of the major objections that have been made to challenge the stem cell plasticity data. This controversy will be placed in the context of the traditional view of stem cell potential and cell phenotypic diversification. What the implications of cell plasticity are, and how its existence may modulate our present understanding of stem cell biology, will be explored. In addition, we will examine a topic that is usually not included within a discussion of stem cell biology—the direct conversion of one differentiated cell type into another. We believe that these observations on the transdifferentiation of differentiated cells have direct bearing on the issue of stem cell plasticity, and may provide insights into how cell phenotypic diversification is realized in the adult and into the origin of cell phenotypes during evolution. Birth Defects Research (Part C) 69:209–218, 2003. © 2003 Wiley-Liss, Inc.