Tissue stem cells are the cell of origin for many malignancies. Metabolites regulate the balance between self-renewal and differentiation, but whether endogenous metabolic pathways or nutrient availability predispose stem cells towards transformation remains unknown. Here, we address this question in epidermal stem cells (EpdSCs), which are a cell of origin for squamous cell carcinoma. We find that oncogenic EpdSCs are serine auxotrophs whose growth and self-renewal require abundant exogenous serine. When extracellular serine is limited, EpdSCs activate de novo serine synthesis, which in turn stimulates α-ketoglutarate-dependent dioxygenases that remove the repressive histone modification H3K27me3 and activate differentiation programmes. Accordingly, serine starvation or enforced α-ketoglutarate production antagonizes squamous cell carcinoma growth. Conversely, blocking serine synthesis or repressing α-ketoglutarate-driven demethylation facilitates malignant progression. Together, these findings reveal that extracellular serine is a critical determinant of EpdSC fate and provide insight into how nutrient availability is integrated with stem cell fate decisions during tumour initiation.