To study the biodistribution of MSCs, we labeled adult murine C57BL/6 MSCs with firefly luciferase and DsRed2 fluorescent protein using nonviral Sleeping Beauty transposons and coinfused labeled MSCs with bone marrow into irradiated allogeneic recipients. Using in vivo whole-body imaging, luciferase signals were shown to be increased between weeks 3 and 12. Unexpectedly, some mice with the highest luciferase signals died and all surviving mice developed foci of sarcoma in their lungs. Two mice also developed sarcomas in their extremities. Common cytogenetic abnormalities were identified in tumor cells isolated from different animals. Original MSC cultures not labeled with transposons, as well as independently isolated cultured MSCs, were found to be cytogenetically abnormal. Moreover, primary MSCs derived from the bone marrow of both BALB/c and C57BL/6 mice showed cytogenetic aberrations after several passages in vitro, showing that transformation was not a strain-specific nor rare event. Clonal evolution was observed in vivo, suggesting that the critical transformation event(s) occurred before infusion. Mapping of the transposition insertion sites did not identify an obvious transposon-related genetic abnormality, and p53 was not overexpressed. Infusion of MSC-derived sarcoma cells resulted in malignant lesions in secondary recipients. This new sarcoma cell line, S1, is unique in having a cytogenetic profile similar to human sarcoma and contains bioluminescent and fluorescent genes, making it useful for investigations of cellular biodistribution and tumor response to therapy in vivo. More importantly, our study indicates that sarcoma can evolve from MSC cultures.