Mesenchymal stem cells (MSCs) have potential applications in regenerative medicine and tissue engineering as well as being potential carriers for tumour therapy. However, the safety of using MSCs in tumours is unknown. Herein, we analyse malignant transformation of MSCs in the tumour microenvironment. Rat bone marrow MSCs were cultured with malignant rat glioma C6 cells without direct cell–cell contact. After 7 days, the cells were assessed for transformation using flow cytometry, real-time quantitative PCR, immunofluorescence and chromosomal analysis. In addition, wild-type (WT) p53, mutant p53 and mdm2 was determined using Western blotting. Almost all MSCs became phenotypically malignant cells, with significantly decreased WT p53 expression and increased expression of mutant p53 and mdm2, along with an aneuploid karyotype. To evaluate tumorigenesis in vivo, the MSCs indirect co-cultured with C6 cells for 7 days were transplanted subcutaneously into immuno-deficient mice. The cells developed into a large tumour at the injection site within 8 weeks, with systemic symptoms including cachexia and scoliosis. Pathological and cytological analysis revealed poorly differentiated pleomorphic cells with a dense vascular network and aggressive invasion into the adjacent muscle. These data demonstrate that MSCs became malignant cancer cells when exposed to the tumour microenvironment and suggest that factors released from the cancer cells have a critical role in the malignant transformation of MSCs. Copyright © 2012 John Wiley & Sons, Ltd.