How fully differentiated cells that experience carcinogenic insults become proliferative cancer progenitors that acquire multiple initiating mutations is not clear. This question is of particular relevance to hepatocellular carcinoma (HCC), which arises from differentiated hepatocytes. Here we show that one solution to this problem is provided by CD44, a hyaluronic acid receptor whose expression is rapidly induced in carcinogen-exposed hepatocytes in a STAT3-dependent manner. Once expressed, CD44 potentiates AKT activation to induce the phosphorylation and nuclear translocation of Mdm2, which terminates the p53 genomic surveillance response. This allows DNA-damaged hepatocytes to escape p53-induced death and senescence and respond to proliferative signals that promote fixation of mutations and their transmission to daughter cells that go on to become HCC progenitors.