Patients with tuberous sclerosis complex (TSC) develop hamartomas containing biallelic inactivating mutations in either TSC1 or TSC2, resulting in mammalian target of rapamycin (mTOR) activation. Hamartomas overgrow epithelial and mesenchymal cells in TSC skin. The pathogenetic mechanisms for these changes had not been investigated, and the existence or location of cells with biallelic mutations (“two-hit” cells) was unclear. We compared TSC skin hamartomas (angiofibromas and periungual fibromas) with normal-appearing skin of the same patient, and we observed more proliferation and mTOR activation in hamartoma epidermis. Two-hit cells were not detected in the epidermis. Fibroblast-like cells in the dermis, however, exhibited allelic deletion of TSC2, in both touch preparations of fresh tumor samples and cells grown from TSC skin tumors, suggesting that increased epidermal proliferation and mTOR activation were not caused by second-hit mutations in the keratinocytes but by mesenchymal–epithelial interactions. Gene expression arrays, used to identify potential paracrine factors released by mesenchymal cells, revealed more epiregulin mRNA in fibroblast-like angiofibroma and periungual fibroma cells than in fibroblasts from normal-appearing skin of the same patient. Elevation of epiregulin mRNA was confirmed with real-time PCR, and increased amounts of epiregulin protein were demonstrated with immunoprecipitation. Epiregulin stimulated keratinocyte proliferation and phosphorylation of ribosomal protein S6 in vitro. These results suggest that hamartomatous TSC skin tumors are induced by paracrine factors released by two-hit cells in the dermis and that proliferation with mTOR activation of the overlying epidermis is an effect of epiregulin.