Despite recent emerging evidence suggesting that cancer stem cells subsist in a variety of tumors, it is not yet fully elucidated whether postnatal stem cells are directly involved in tumorigenesis. We used murine bone marrow–derived mesenchymal stem cells (BMMSCs) as a model to test a hypothesis that tumorigenesis may originate from spontaneous mutation of stem cells. In this study, we demonstrated that murine BMMSCs, after numerous passages, obtained unlimited population doublings and proceeded to a malignant transformation state, resulting in fibrosarcoma formation in vivo. Transformed BMMSCs colonized to multiple organs when delivered systemically through the tail vein. Fibrosarcoma cells formed by transformed BMMSCs contained cancer progenitors, which were capable of generating colony clusters in vitro and fibrosarcoma in vivo by the second administration. The mechanism by which BMMSCs transformed to malignant cells was associated with accumulated chromosomal abnormalities, gradual elevation in telomerase activity, and increased c-myc expression. Moreover, BMMSCs and their transformed counterpart, fibrosarcoma-forming cells, demonstrated different sensitivity to anti-cancer drugs. BMMSCs/fibrosarcoma transformation system may provide an ideal system to elucidate the mechanism of how stem cells become cancer cells and to screen anti-sarcoma drugs.