Gene expression and functional studies have indicated that the molecular programmes involved in prostate development are also active in prostate cancer. PTEN has been implicated in human prostate cancer and is frequently mutated in this disease. Here, using the Nkx3.1:Cre mouse strain and a genetic deletion approach, we investigate the role of Pten specifically in the developing mouse prostate epithelia. In contrast to its role in other developing organs, this gene is dispensable for the initial developmental processes such as budding and branching. However, as cytodifferentiation progresses, abnormal luminal cells fill the ductal lumens together with augmented epithelial proliferation. This phenotype resembles the hyperplasia seen in postnatal Pten deletion models that develop neoplasia at later stages. Consistent with this, gene expression analysis showed a number of genes affected that are shared with Pten mutant prostate cancer models, including a decrease in androgen receptor regulated genes. In depth analysis of the phenotype of these mice during development revealed that loss of Pten leads to the precocious differentiation of epithelial cells towards a luminal cell fate. This study provides novel insight into the role of Pten in prostate development as part of the process of coordinating the differentiation and proliferation of cell types in time and space to form a functional organ.