We previously reported that normal human keratinocytes controlled neoplastic progression of tumor cells at an early stage of transformation in stratified squamous epithelium. We now studied if cells at a more advanced stage of transformation were also subject to such microenvironmental control. To accomplish this, 3D human tissues that mimic intraepithelial neoplasia were fabricated by mixing genetically marked (β-gal), early-stage (II-4 cells) or advanced-stage (SCC13) transformed keratinocytes with normal keratinocytes, and tumor cell fate and phenotype were monitored in organotypic culture and after surface transplantation to nude mice. In vivo, SCC13 cells evaded local growth suppression to undergo connective tissue invasion at significantly lower tumor cell volumes (12:1, 50:1 normal:tumor cells) than II-4 cells. This behavior was explained by the growth suppression of II-4 cells, while advanced-stage tumor cells escaped this control and continued to undergo clonal expansion in mixed cultures to form large, intraepithelial tumor clusters. These communities of tumor cells underwent autonomous growth that was associated with altered expression of markers of differentiation (keratin 1) and cell–cell communication (connexin-43). Furthermore, significantly greater numbers of SCC13 cells expanded into a basal position after low-calcium stripping of suprabasal cells of mixed cultures compared to II-4 cells, suggesting that expansion of these cells enabled tumor cell invasion after transplantation. These findings demonstrated that early tumor development in human stratified squamous epithelium required escape from microenvironmental growth control that was dependent on the transformation stage of intraepithelial tumor cells during the premalignant stage of cancer progression. © 2005 Wiley-Liss, Inc.