Genomic rearrangements commonly occur in many types of cancers and often initiate or alter the progression of disease. Here we describe an in vivo mouse model that recapitulates the most frequent rearrangement in prostate cancer, the fusion of the promoter region of TMPRSS2 with the coding region of the transcription factor, ERG. A recombinant bacterial artificial chromosome including an extended TMPRSS2 promoter driving genomic ERG was constructed and used for transgenesis in mice. TMPRSS2-ERG expression was evaluated in tissue sections and FACS-fractionated prostate cell populations. In addition to the anticipated expression in luminal cells, TMPRSS2-ERG was similarly expressed in the Sca-1hi/EpCAM+ basal/progenitor fraction, where expanded numbers of clonogenic self-renewing progenitors were found, as assayed by in vitro sphere formation. These clonogenic cells increased intrinsic self renewal in subsequent generations. In addition, ERG dependent self-renewal and invasion in vitro was demonstrated in prostate cell lines derived from the model. Clinical studies have suggested that the TMPRSS2-ERG translocation occurs early in prostate cancer development. In the model described here, the presence of the TMPRSS2-ERG fusion alone was not transforming but synergized with heterozygous Pten deletion to promote PIN. Taken together, these data suggest that one function of TMPRSS2-ERG is the expansion of self-renewing cells, which may serve as targets for subsequent mutations. Primary prostate epithelial cells demonstrated increased post transcriptional turnover of ERG compared to the TMPRSS2-ERG positive VCaP cell line, originally isolated from a prostate cancer metastasis. Finally, we determined that TMPRSS2-ERG expression occurred in both castration-sensitive and resistant prostate epithelial subpopulations, suggesting the existence of androgen-independent mechanisms of TMPRSS2 expression in prostate epithelium.