A wide variety of human cancers are associated with injury. Although stem cells participate in tissue regeneration after wounding, it is unclear whether these cells also contribute to epithelial tumors. Human basal cell carcinomas (BCCs) are associated with misactivation of Hedgehog (Hh) signaling, commonly through acquisition of mutations in Smoothened (Smo). We have found that expression of an activated form of Smo by stem cells of the hair-follicle bulge and secondary hair germ does not induce robust Hh signaling or produce BCCs. However, wounding recruits these cells from the follicle to the wound site, where downstream Hh signal transduction is derepressed, giving rise to superficial BCC-like tumors. These findings demonstrate that BCC-like tumors can originate from follicular stem cells and provide an explanation for the association between wounding and tumorigenesis.