Deregulation of androgen receptor (AR) splice variants has been implicated to play a role in prostate cancer development and progression. To understand their functions in prostate, we established a transgenic mouse model (AR3Tg) with targeted expression of the constitutively active and androgen-independent AR splice variant AR3 (a.k.a. AR-V7) in prostate epithelium. We found that overexpression of AR3 modulates expression of a number of tumor-promoting autocrine/paracrine growth factors (including Tgfβ2 and Igf1) and expands prostatic progenitor cell population, leading to development of prostatic intraepithelial neoplasia. In addition, we showed that some epithelial-mesenchymal transition-associated genes are up-regulated in AR3Tg prostates, suggesting that AR3 may antagonize AR activity and halt the differentiation process driven by AR and androgen. This notion is supported by our observations that the number of Ck5(+)/Ck8(+) intermediate cells is increased in AR3Tg prostates after castration, and expression of AR3 transgene in these intermediate cells compromises prostate epithelium regeneration upon androgen replacement. Our results demonstrate that AR3 is a driver of prostate cancer, at least in part, through modulating multiple tumor-promoting autocrine/paracrine factors.