Background: Neurofibromatosis type 1 (NF1), a genetic tumor predisposition syndrome that affects about 1 in 3000 newborns, is caused by mutations in the NF1 gene and subsequent inactivation of its encoded neurofibromin. Neurofibromin is a tumor suppressor protein involved in the downregulation of Ras signaling. Despite a diverse clinical spectrum, one of several hallmarks of NF1 is a peripheral nerve sheath tumor (PNST), which comprises mixed nervous and fibrous components. The distinct spatiotemporal characteristics of plexiform and cutaneous neurofibromas have prompted hypotheses about the origin and developmental features of these tumors, involving various cellular transition processes. Methods: We retrieved published literature from PubMed, EMBASE, and Web of Science up to 21 June 2022 and searched references cited in the selected studies to identify other relevant papers. Original articles reporting the pathogenesis of PNSTs during development were included in this review. We highlighted the Schwann cell (SC) lineage shift to better present the evolution of its corresponding cellular origin hypothesis and its important effects on the progression and malignant transformation of neurofibromas. Conclusions: In this review, we summarized the vast array of evidence obtained on the full range of neurofibroma development based on cellular and molecular pathogenesis. By integrating findings relating to tumor formation, growth, and malignancy, we hope to reveal the role of SC lineage shift as well as the combined impact of additional determinants in the natural history of PNSTs.