Tumorigenesis requires sequential accumulation of multiple genetic lesions. In the prostate, tumor initiation is often linked to loss of heterozygosity at the Nkx3.1 locus. In mice, loss of even one Nkx3.1 allele causes prostatic epithelial hyperplasia and eventual prostatic intraepithelial neoplasia (PIN) formation. Here we demonstrate that Nkx3.1 allelic loss extends the proliferative stage of regenerating luminal cells, leading to epithelial hyperplasia. Microarray analysis identified Nkx3.1 target genes, many of which show exquisite dosage sensitivity. The number of Nkx3.1 alleles determines the relative probabilities of stochastic activation or inactivation of a given target gene. Thus, loss of a single Nkx3.1 allele likely results in hyperplasia and PIN by increasing the probability of completely inactivating select Nkx3.1-regulated pathways within a subset of affected cells.