The interplay between histone modifications and promoter hypermethylation provides a causative explanation for epigenetic gene silencing in cancer. Less is known about the upstream initiators that direct this process. Here, we report that the Cystatin M (CST6) tumor suppressor gene is concurrently down-regulated with other loci in breast epithelial cells cocultured with cancer-associated fibroblasts (CAF). Promoter hypermethylation of CST6 is associated with aberrant AKT1 activation in epithelial cells, as well as the disabled INNP4B regulator resulting from the suppression by CAFs. Repressive chromatin, marked by trimethyl-H3K27 and dimethyl-H3K9, and de novo DNA methylation is established at the promoter. The findings suggest that microenvironmental stimuli are triggers in this epigenetic cascade, leading to the long-term silencing of CST6 in breast tumors. Our present findings implicate a causal mechanism defining how tumor stromal fibroblasts support neoplastic progression by manipulating the epigenome of mammary epithelial cells. The result also highlights the importance of direct cell-cell contact between epithelial cells and the surrounding fibroblasts that confer this epigenetic perturbation. Because this two-way interaction is anticipated, the described coculture system can be used to determine the effect of epithelial factors on fibroblasts in future studies. [Cancer Res 2008;68(24):10257–66]