Neurofibromatosis type 1 (NF1) is one of the most common neurocutaneous genetic disorders, presenting with different cutaneous features such as café-au-lait macules, intertriginous skin freckling, and neurofibromas. Although most of the disease manifestations are benign, patients are at risk for a variety of malignancies, including malignant transformation of plexiform neurofibromas. Numerous studies have investigated the mechanisms by which these characteristic neurofibromas develop, with progress made toward unraveling the various players involved in their complex pathogenesis. In this review, we summarize the current understanding of the cells that give rise to NF1 neoplasms as well as the molecular mechanisms and cellular changes that confer tumorigenic potential. We also discuss the role of the tumor microenvironment and the key aspects of its various cell types that contribute to NF1-associated tumorigenesis. An increased understanding of these intrinsic and extrinsic components is critical for developing novel therapeutic approaches for affected patients.