The tumor predisposition disorder Neurofibromatosis type I (NF1) is one of the most common genetic disorders of the nervous system. It is caused by mutation in the Nf1 tumor suppressor gene, which encodes a GTPase Activating Protein (GAP) that negatively regulates p21-RAS. The development of malignant nerve tumors and neurofibromas, the most frequent tumors in NF1, is a serious complication of the disease. However, little is known about the molecular mechanisms mediating the initiation and progression of these complex tumors, as well as the identity of the specific cell type that gives rise to dermal or cutaneous neurofibromas. In this study, we identify a population of neural crest related stem cells residing in the dermis termed Skin Derived Precursors (SKPs) that, through loss of Nf1, form neurofibromas. We propose that SKPs, or their derivatives, are the cell of origin of dermal neurofibroma. We also provide evidence that additional signals from the non-neoplastic cells in the tumor microenvironment play essential roles in neurofibroma tumorigenesis. These new findings provide a novel approach to gain a greater understanding of the molecular pathogenesis of neurofibroma and exploit innovative therapeutic approach in clinical trial to treat NF1-associated neurofibromas.