We have isolated progenitor cells from the stromal system of the fibrous dysplastic marrow of patients with McCune-Albright Syndrome. Analysis of the Gsalpha gene from individual colonies provided direct evidence for the presence of two different genotypes within single fibrous dysplastic lesions: marrow stromal cells containing two normal Gsalpha alleles, and those containing one normal allele and an allele with an activating mutation. Transplantation of clonal populations of normal cells into the subcutis of immunocompromised mice resulted in normal ossicle formation. In contrast, transplantation of clonal populations of mutant cells always led to the loss of transplanted cells from the transplantation site and no ossicle formation. However, transplantation of a mixture of normal and mutant cells reproduced an abnormal ectopic ossicle recapitulating human fibrous dysplasia and providing an in vivo cellular model of this disease. These results provide experimental evidence for the necessity of both normal and mutant cells in the development of McCune-Albright Syndrome fibrous dysplastic lesions in bone.