The RNA‐binding protein Musashi1 (MSI1) is a marker of progenitor cells in the nervous system functioning as a translational repressor. We detected MSI1 mRNA in several bladder carcinoma cell lines, but not in cultured normal uroepithelial cells, whereas the paralogous MSI2 gene was broadly expressed. Knockdown of MSI1 expression by siRNA induced apoptosis and a severe decline in cell numbers in 5637 bladder carcinoma cells. Microarray analysis of gene expression changes after MSI1 knockdown significantly up‐regulated 735 genes, but down‐regulated only 31. Up‐regulated mRNAs contained a highly significantly greater number and density of Musashi binding sites. Therefore, a much larger set of mRNAs may be regulated by Musashi1, which may affect not only their translation, but also their turnover. The study confirmed p21^CIP1 and Numb proteins as targets of Musashi1, suggesting additionally p27^KIP1 in cell‐cycle regulation and Jagged‐1 in Notch signalling. A significant number of up‐regulated genes encoded components of stress granules (SGs), an organelle involved in translational regulation and mRNA turnover, and impacting on apoptosis. Accordingly, heat shock induced SG formation was augmented by Musashi1 down‐regulation. Our data show that ectopic MSI1 expression may contribute to tumorigenesis in selected bladder cancers through multiple mechanisms and reveal a previously unrecognized function of Musashi1 in the regulation of SG formation.