Hereditary mixed polyposis syndrome (HMPS) is characterized by the development of mixed-morphology colorectal tumors and is caused by a 40-kb genetic duplication that results in aberrant epithelial expression of the gene encoding mesenchymal bone morphogenetic protein antagonist, GREM1. Here we use HMPS tissue and a mouse model of the disease to show that epithelial GREM1 disrupts homeostatic intestinal morphogen gradients, altering cell fate that is normally determined by position along the vertical epithelial axis. This promotes the persistence and/or reacquisition of stem cell properties in Lgr5-negative progenitor cells that have exited the stem cell niche. These cells form ectopic crypts, proliferate, accumulate somatic mutations and can initiate intestinal neoplasia, indicating that the crypt base stem cell is not the sole cell of origin of colorectal cancer. Furthermore, we show that epithelial expression of GREM1 also occurs in traditional serrated adenomas, sporadic premalignant lesions with a hitherto unknown pathogenesis, and these lesions can be considered the sporadic equivalents of HMPS polyps.