Somatic mutations can be identified in two-thirds of papillary and follicular thyroid carcinomas and 'hot' thyroid nodules, whereas equivalent mutations relevant for benign 'cold' thyroid nodules are unknown. This Review summarizes current knowledge about early molecular conditions for nodular and tumor transformation in the thyroid gland. We reconstruct a line of events that could explain the predominant neoplastic character (i.e. originating from a single mutated cell) of thyroid nodular lesions. This process might be triggered by the oxidative nature of thyroid hormone synthesis or additional oxidative stress caused by iodine deficiency or smoking. If the antioxidant defense is not effective, this oxidative stress can cause DNA damage followed by an increase in the spontaneous mutation rate, which is a platform for tumor genesis. The hallmark of thyroid physiology--H2O2 production during hormone synthesis--is therefore very likely to be the ultimate cause of frequent mutagenesis in the thyroid gland. DNA damage and mutagenesis could provide the basis for the frequent nodular transformation of endemic goiters.