The constitutive androstane receptor (CAR, NR1I3) is a central regulator of xenobiotic metabolism. CAR activation induces hepatic expression of detoxification enzymes and transporters and increases liver size. Here we show that CAR-mediated hepatomegaly is a transient, adaptive response to acute xenobiotic stress. In contrast, chronic CAR activation results in hepatocarcinogenesis. In both acute and chronic xenobiotic responses, hepatocyte DNA replication is increased and apoptosis is decreased. These effects are absent in CAR null mice, which are completely resistant to tumorigenic effects of chronic xenobiotic stress. In the acute response, direct up-regulation of Mdm2 expression by CAR contributes to both increased DNA replication and inhibition of p53-mediated apoptosis. These results demonstrate an essential role for CAR in regulating both liver homeostasis and tumorigenesis in response to xenobiotic stresses, and they also identify a specific molecular mechanism linking chronic environmental stress and tumor formation.