Evidence from many studies has established the neoplastic potential of ductal carcinoma in situ, but the origin and the morphological characteristics of the early stages of this proliferation remain unidentified. Workers writing in the early twentieth century observed a cystic transformation of lobules and proposed that it represented one such early stage, and contemporary European and Japanese pathologists have reached the same conclusion. We describe the characteristics of this cystic transformation, which we call us "atypical cystic lobules," and present evidence to support the proposal that the alteration is a step in the formation of low-grade ductal carcinoma in situ. Atypical cystic lobules are a proliferation of luminal cells showing low-grade cytological atypia without architectural atypia. The study group comprised 21 cases of atypical cystic lobules from specimens also showing conventional low-grade ductal carcinoma in situ or lobular neoplasia. Immunohistochemical staining for hormone receptors, keratin 19, and cyclin D1 revealed that atypical cystic lobules demonstrated a consistent immunophenotype, which differs from the pattern shown by normal lobules and benign lesions and matches that of low-grade ductal carcinoma in situ. In about 40% of the cases, atypical cystic lobules merged with fully established micropapillary/cribriform ductal carcinoma in situ. The similarities in the cytological and immunohistochemical features and the proximity of the two types of proliferation suggest that atypical cystic lobules represent an early stage in the formation of certain types of low-grade ductal carcinoma in situ.