A hypothesis is proposed that unifies prostatic developmental biology and carcinogenesis. The foundation of this hypothesis is the reciprocal interaction of epithelium and mesenchyme during prostatic development followed thereafter by a reciprocal homeostatic interaction of epithelium and smooth muscle in adulthood. This smooth muscle-epithelial cell interaction is perturbed during prostatic carcinogenesis with adverse sequelae for both epithelium and smooth muscle. The following sequence of events is proposed to occur: (1) Under the influence of androgens, urogenital sinus mesenchyme (UGM) induces urogenital sinus epithelium to undergo prostatic ductal morphogenesis and differentiation. (2) As prostatic epithelium differentiates, it in turn signals the UGM to differentiate into smooth muscle cells that closely surround the epithelial ducts. Differentiation of prostatic smooth muscle requires both an inductive signal from epithelium and androgens. (3) Once formed, prostatic smooth muscle participates in reciprocal homeostatic interactions. We propose that prostatic smooth muscle under the influence of androgens signals to prostatic epithelium to maintain epithelial differentiation and to repress epithelial proliferation, while prostatic epithelium signals to prostatic smooth muscle to maintain smooth muscle differentiation. In adulthood, homeostasis is maintained through reciprocal interactions between smooth muscle and epithelial cells with minimal proliferation of either cell type. Prostatic carcinogenesis, which is initiated following genetic damage to prostatic epithelium, is surmised to involve a sequential disruption in these reciprocal homeostatic interactions with ensuing dedifferentiation of both the emerging prostatic carcinoma cells and smooth muscle. Thus, following genetic insult to prostatic epithelium the epithelium fails to signal appropriately to the smooth muscle, which then begins to dedifferentiate. As smooth muscle differentiation begins to deviate, signaling from prostatic smooth muscle to prostatic epithelium becomes anomalous resulting in progressive loss of control over epithelial differentiation and proliferation. During progression of prostatic carcinogenesis a vicious cycle is established in which both prostatic epithelium and smooth muscle dedifferentiate. This hypothesis is based on the ontogeny of prostatic smooth muscle differentiation during development and by the fact that the amount of smooth muscle progressively diminishes in human prostatic adenocarcinomas during progression from low- to high-grade cancers. Finally, in experimental tissue recombinants in which various normal or neoplastic prostatic epithelia were grown in combination with embryonic rat UGM, only normal (non-neoplastic) epithelia were capable of inducing differentiation of prostatic smooth muscle in UGM. Based on several lines of evidence, it is now apparent that smooth muscle-epithelial interactions are the operative cell-cell interaction in the postnatal prostate which plays a key role in regulating epithelial differentiation, proliferation and carcinogenesis.