Recent evidence suggests that alterations in the self-renewal program of stem/progenitor cells can cause tumorigenesis. By utilizing genetically engineered mouse models of neurofibromatosis type 1 (NF1), we demonstrated that plexiform neurofibroma, the only benign peripheral nerve sheath tumor with potential for malignant transformation, results from Nf1 deficiency in fetal stem/progenitor cells of peripheral nerves. Surprisingly, this did not cause hyperproliferation or tumorigenesis in early postnatal period. Instead, peripheral nerve development appeared largely normal in the absence of Nf1 except for abnormal Remak bundles, the nonmyelinated axon-Schwann cell unit, identified in postnatal mutant nerves. Subsequent degeneration of abnormal Remak bundles was accompanied by initial expansion of nonmyelinating Schwann cells. We suggest abnormally differentiated Remak bundles as a cell of origin for plexiform neurofibroma.