Tumors derived from rat LA7 cancer stem cells (CSCs) contain a hierarchy of cells with different capacities to generate self-renewing spheres and tubules serially ex vivo and to evoke tumors in vivo. We isolated two morphologically distinct cell types with distinct tumorigenic potential from LA7-evoked tumors: cells with polygonal morphology that are characterized by expression of p21/(WAF1) and p63 and display hallmarks of CSCs and elongated epithelial cells, which generate tumors with far less heterogeneity than LA7 CSCs. Serial transplantation of elongated epithelial cells results in progressive loss of tumorigenic potential; tumor heterogeneity; CD44, E-cadherin, and epithelial cytokeratin expression and increased alpha-smooth muscle actin I and vimentin expression. In contrast, serial transplantation of LA7 CSCs can be performed indefinitely and results in tumors that maintain their heterogeneity, consistent with self-renewal and multilineage differentiation potential. Collectively, our data show that polygonal cells are CSCs, whereas epithelial elongated cells are lineage-committed progenitors with tumorigenic potential, and suggest that tumor progenitors, although lacking indefinite self-renewal potential, nevertheless may make a substantial contribution to tumor development. Because LA7 cells can switch between conditions that favor maintenance of pure CSCs vs. differentiation into other tumor cell types, this cell system provides the opportunity to study factors that influence CSC self-renewal and differentiation. One factor, p63, was identified as a key gene regulating the transition between CSCs and early progenitor cells.