Esophageal squamous-cell carcinoma (ESCC) develops through multistage epithelial cancer formation, i.e., from normal epithelium, low- and high-grade intraepithelial neoplasia to invasive carcinoma. However, how the precancerous lesions progress to carcinoma remains elusive. Here, we report a comprehensive single-cell RNA sequencing and spatial transcriptomic study of 79 multistage esophageal lesions from 29 patients with ESCC. We reveal a gradual and significant loss of ANXA1 expression in epithelial cells due to its transcription factor KLF4 suppression along the lesion progression. We demonstrate that ANXA1 is a ligand to formyl peptide receptor type 2 (FPR2) on fibroblasts that maintain fibroblast homeostasis. Loss of ANXA1 leads to uncontrolled transformation of normal fibroblasts into cancer-associated fibroblasts (CAFs), which can be enhanced by secreted TGF-β from malignant epithelial cells. Given the role of CAFs in cancer, our study underscores ANXA1/FPR2 signaling as an important crosstalk mechanism between epithelial cells and fibroblasts in promoting ESCC. Display omitted •Single-cell and spatial transcriptomic analyses of multistage ESCC tumorigenesis•The ANXA1 level in epithelial cells is gradually depleted along ESCC progression•ANXA1 depletion promotes ESCC via activating cancer-associated fibroblast formation•Reduced transcription factor KLF4 level causes ANXA1 depletion Chen et al. perform single-cell and spatial transcriptomic analyses of multistage esophageal lesions and reveal gradual loss of ANXA1 expression in epithelial cells during ESCC development. Both in vitro and in vivo experiments demonstrate that suppressed ANXA1-FPR2 ligand-receptor interaction between epithelial-fibroblast leads to cancer-associated fibroblast formation, which promotes ESCC progression.