Wood, a type of xylem tissue, originates from cell proliferation of the vascular cambium. Xylem is produced inside, and phloem outside, of the cambium1. Morphogenesis in plants is typically coordinated by organizer cells that direct the adjacent stem cells to undergo programmed cell division and differentiation. The location of the vascular cambium stem cells and whether the organizer concept applies to the cambium are currently unknown2. Here, using lineage-tracing and molecular genetic studies in the roots of Arabidopsis thaliana, we show that cells with a xylem identity direct adjacent vascular cambial cells to divide and function as stem cells. Thus, these xylem-identity cells constitute an organizer. A local maximum of the phytohormone auxin, and consequent expression of CLASS III HOMEODOMAIN-LEUCINE ZIPPER (HD-ZIP III) transcription factors, promotes xylem identity and cellular quiescence of the organizer cells. Additionally, the organizer maintains phloem identity in a non-cell-autonomous fashion. Consistent with this dual function of the organizer cells, xylem and phloem originate from a single, bifacial stem cell in each radial cell file, which confirms the classical theory of a uniseriate vascular cambium3. Clones that display high levels of ectopically activated auxin signalling differentiate as xylem vessels; these clones induce cell divisions and the expression of cambial and phloem markers in the adjacent cells, which suggests that a local auxin-signalling maximum is sufficient to specify a stem-cell organizer. Although vascular cambium has a unique function among plant meristems, the stem-cell organizer of this tissue shares features with the organizers of root and shoot meristems.