Long-term cultures of telomerase-transduced adult human mesenchymal stem cells (hMSC) may evolve spontaneous genetic changes leading to tumorigenicity in immunodeficient mice (e.g., hMSC-TERT20). We wished to clarify whether this unusual phenotype reflected a rare but dominant subpopulation or if the stem cell origin allowed most cells to behave as cancer stem cells. Cultures of the hMSC-TERT20 strain at population doubling 440 were highly clonogenic (94%). From 110 single-cell clones expanded by 20 population doublings, 6 underwent detailed comparison. Like the parental population, each clone had approximately 1.2 days doubling time with loss of contact inhibition. All retained 1,25-(OH)(2) vitamin D(3)-induced expression of osteoblastic markers: collagen type I, alkaline phosphatase, and osteocalcin. All shared INK4a/ARF gene locus deletion and epigenetic silencing of the DBCCR1 tumor suppressor gene. Despite in vitro commonality, only four of six clones shared the growth kinetics and 100% tumorigenicity of the parental population. In contrast, one clone consistently formed latent tumors and the other established tumors with only 30% penetrance. Changing the in vitro microenvironment to mimic in vivo growth aspects revealed concordant clonal heterogeneity. Latent tumor growth correlated with extracellular matrix entrapment of multicellular spheroids and high procollagen type III expression. Poor tumorigenicity correlated with in vitro serum dependence and high p27(Kip1) expression. Aggressive tumorigenicity correlated with good viability plus capillary morphogenesis on serum starvation and high cyclin D1 expression. Thus, hMSC-TERT20 clones represent cancer stem cells with hierarchical tumorigenicity, providing new models to explore the stem cell hypothesis for cancer.