The vascular cambium contains bifacial stem cells producing secondary phloem in one and secondary xylem to the opposite direction. In Arabidopsis roots, these stem cells are first established adjacent to primary xylem cells suggesting that undifferentiated primary xylem cells function as stem-cell organizers. Here, we show that auxin transport-guided auxin accumulation in the cells with primary xylem identity (PXI cells) within the root apical meristem defines the vascular cambial stem-cell organizer already during the primary development. Ablation of PXI cells or transient interference of auxin transport resulted in respecification of stem cells within the vascular bundle in a scattered manner. Similarly, ablation of cells with secondary xylem identity (SXI cells) in the mature vascular cambium resulted in the regeneration of SXI cells from stem cells within the same radial cell files. Reciprocally, ablation of stem cells in mature vascular cambium led to respecification of new stem cells from adjacent SXI cells. Thus, in response to injury, xylem identity cells and stem cells form an interchangeable unit, which we propose to define as a stem cell niche. Successful respecification of stem cells required functional auxin transport and presence of undifferentiated xylem cells. Overall, our findings reveal that undifferentiated secondary xylem functions as the stem cell reservoir and highlight the key role of auxin transport-mediated auxin accumulation in stem cell positioning during cambium development and regeneration.