Aldehyde dehydrogenase 1 (ALDH1) has been shown to serve as a marker for cancer-initiating cells (CICs), but little is known about the regulation of the CIC functions of ALDH1+ cancer cells. We isolated ALDH1+ cells from human diffuse-type gastric carcinoma cells and characterized these cells using an Aldefluor assay. ALDH1+ cells constituted 5-8% of the human diffuse-type gastric carcinoma cells, OCUM-2MLN and HSC-39; were more tumourigenic than ALDH1- cells; and were able to self-renew and generate heterogeneous cell populations. Using gene expression microarray analyses, we identified REG4 (regenerating islet-derived family, member 4) as one of the genes up-regulated in ALDH1+ cells, and thus as a novel marker for ALDH1+ tumour cells. Induced expression of REG4 enhanced the colony-forming ability of OCUM-2MLN cells, while knockdown of REG4 inhibited the tumourigenic potential of ALDH1+ cells. We further found that TGF-β signalling reduces the expression of ALDH1 and REG4, and the size of the ALDH1+ cell population. In human diffuse-type gastric carcinoma tissues, the expression of ALDH1 and REG4 correlated with each other, as assessed by immunohistochemistry, and ALDH1 expression correlated inversely with Smad3 phosphorylation as a measure of TGF-β signalling. These findings illustrate that, in diffuse-type gastric carcinoma, REG4 is up-regulated in ALDH1+ CICs, and that the increased tumourigenic ability of ALDH1+ cells depends on REG4. Moreover, TGF-β down-regulates ALDH1 and REG4 expression, which correlates with a reduction in CIC population size and tumourigenicity. Targeting REG4 in ALDH1+ CICs may provide a novel strategy in the treatment of diffuse-type gastric carcinoma.