An increasing body of evidence suggests that tumors might originate from a few transformed cells that share many properties with normal stem cells. However, it remains unclear how normal stem cells are transformed into cancer stem cells (CSCs). Here, we demonstrated that mutations causing the loss of tumor suppressor Salvador (Sav) or Scribble (Scrib) or activation of the oncogene Ras transform normal stem cells into CSCs through a multistep process in the adult Drosophila Malpighian Tubules (MTs). In wild-type MTs, each stem cell generates one self-renewing and one differentiating daughter cell. However, in flies with loss-of-function sav or scrib or gain-of-function Ras mutations, both daughter cells grew and behaved like stem cells, leading to the formation of tumors in MTs. Ras functioned downstream of Sav and Scrib in regulating the stem-cell transformation. The Ras-transformed stem cells exhibited many of the hallmarks of cancer, such as increased proliferation, reduced cell death, and failure to differentiate. We further demonstrated that several signal transduction pathways (including MEK/MAPK, RhoA, PKA, and TOR) mediate Ras' function in the stem-cell transformation. Therefore, we have identified a molecular mechanism that regulates stem-cell transformation, and this finding may lead to strategies for preventing tumor formation in certain organs.