Neurofibromatosis type 1 (NF1) is a common tumor predisposition syndrome caused by NF1 gene mutation, in which affected patients develop Schwann cell lineage peripheral nerve sheath tumors (neurofibromas). To investigate human neurofibroma pathogenesis, we differentiated a series of isogenic, patient-specific NF1-mutant human induced pluripotent stem cells (hiPSCs) into Schwannian lineage cells (SLCs). We found that, although WT and heterozygous NF1-mutant hiPSCs-SLCs did not form tumors following mouse sciatic nerve implantation, NF1-null SLCs formed bona fide neurofibromas with high levels of SOX10 expression. To confirm that SOX10+ SLCs contained the cells of origin for neurofibromas, both Nf1 alleles were inactivated in mouse Sox10+ cells, leading to classic nodular cutaneous and plexiform neurofibroma formation that completely recapitulated their human counterparts. Moreover, we discovered that NF1 loss impaired Schwann cell differentiation by inducing a persistent stem-like state to expand the pool of progenitors required to initiate tumor formation, indicating that, in addition to regulating MAPK-mediated cell growth, NF1 loss also altered Schwann cell differentiation to promote neurofibroma development. Taken together, we established a complementary humanized neurofibroma explant and, to our knowledge, first-in-kind genetically engineered nodular cutaneous neurofibroma mouse models that delineate neurofibroma pathogenesis amenable to future therapeutic target discovery and evaluation.