The isolation and characterization of prostatic stem cells has received significant attention in the last few years based on the belief that aberrant regulation of adult stem cells leads to prostate disease including cancer. The nature of the perturbations in stem cell regulation remains largely unknown. Although adult stem cells are can be governed by autonomous regulatory mechanisms, the stromal niche environment also provides essential cues to direct directing differentiation decisions and can lead to aberrant proliferation and/or differentiation. Elegant tissue recombination experiments, pioneered by Gerald Cunha and colleagues, provided evidence that quiescent epithelial tissues containing adult stem cells were capable of altered differentiation in response to inductive and instructive mesenchyme. In more recent times, it has been demonstrated that embryonic mesenchyme is sufficiently powerful to direct the differentiation of embryonic stem cells into mature prostate or bladder. In addition, prostatic tumor stroma provides another unique niche or microenvironment for stem cell differentiation that is distinct to normal stroma. This review highlights the importance of the appropriate selection of the stromal cell niche for tissue regeneration and implies plasticity of adult stem cells that is dictated by the tissue microenvironment.