Cancer stem cells (CSC) play a significant role in tumor progression, disease recurrence, and treatment failure. Here, we show that the endogenously expressed ETS transcription factor ESE3/EHF controls prostate epithelial cell differentiation and stem-like potential. We found that loss of ESE3/EHF induced epithelial-to-mesenchymal transition (EMT), stem-like features, and tumor-initiating and metastatic properties in prostate epithelial cells, and reexpression of ESE3/EHF inhibited the stem-like properties and tumorigenic potential of prostate cancer cells. Mechanistically, ESE3/EHF repressed the expression of key EMT and CSC genes, including TWIST1, ZEB2, BMI1, and POU5F1. Analysis of human tissue microarrays showed that reduced ESE3/EHF expression is an early event in tumorigenesis, frequently occurring independently of other ETS gene alterations. Additional analyses linked loss of ESE3/EHF expression to a distinct group of prostate tumors with distinctive molecular and biologic characteristics, including increased expression of EMT and CSC genes. Low ESE3/EHF expression was also associated with increased biochemical recurrence of prostate cancer and reduced overall survival after prostatectomy. Collectively, our findings define a key role for ESE3/EHF in the development of a subset of prostate tumors and highlight the clinical importance of identifying molecularly defined tumor subgroups. Cancer Res; 72(11); 2889–900. ©2012 AACR.