High-grade osteosarcoma is characterized by extensive genetic instability, thereby hampering the identification of causative gene mutations and understanding of the underlying pathological processes. It lacks a benign precursor lesion and reports on associations with hereditary predisposition or germline mutations are uncommon, despite the early age of onset. Here we demonstrate a novel comprehensive approach for the study of premalignant stages of osteosarcoma development in a murine mesenchymal stem cell (MSC) system that formed osteosarcomas upon grafting. By parallel functional and phenotypic analysis of normal MSCs, transformed MSCs and derived osteosarcoma cells, we provide substantial evidence for a MSC origin of osteosarcoma. In a stepwise approach, using COBRA–FISH karyotyping and array CGH in different passages of MSCs, we identified aneuploidization, translocations and homozygous loss of the cdkn2 region as the key mediators of MSC malignant transformation. We then identified CDKN2A/p16 protein expression in 88 osteosarcoma patients as a sensitive prognostic marker, thereby bridging the murine MSCs model to human osteosarcoma. Moreover, occasional reports in patients mention osteosarcoma formation following bone marrow transplantation for an unrelated malignancy. Our findings suggest a possible hazard for the clinical use of MSCs; however, they also offer new opportunities to study early genetic events in osteosarcoma genesis and, more importantly, to modulate these events and record the effect on tumour progression. This could be instrumental for the identification of novel therapeutic strategies, since the success of the current therapies has reached a plateau phase. Copyright © 2009 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.