The phenomenon has puzzled scientists for years, particularly because scans taken after chemotherapy often cannot detect any trace of cancerous cells.
But the researchers discovered in a series of laboratory experiments that they could stop the cells regenerating by using a drug to block a type of protein, known as a hedgehog, which is responsible for growth in cells.
Professor Neil Watkins, of the Monash Institute of Medical Research, said by inhibiting hedgehogs doctors one day might be able to increase the effectiveness of chemotherapy and reduce the risk of cancer returning.
"We have gone a long way to showing how tumour cells regenerate and that's been a mystery for a long time," he said.
"What we found was that ... the hedgehog is very important when the cells are depleted down to a tiny population and are asked to regenerate the tumour.
"If you use drug that blocks the hedgehog signalling (for the cancer cells to regenerate) you can prevent small cell lung cancer cells from regenerating after chemotherapy."
The approach used by the research team in its experiments is different to conventional cancer studies, which mainly focus on shrinking existing tumours.
But in the case of small cell lung cancer, scientists are unable to tell if there are still a tiny number of dangerous cells still hiding in the body after chemotherapy.
"Normally you have the tumours, you give a patient a drug, the tumour shrinks and you say, OK, the drug worked," Prof Watkins said.
"If the tumour doesn't shrink, the drug doesn't work.
"But the hedgehog inhibitor (drugs) in these kind of cancers don't do anything to established tumours.
"They only work after the tumour has been shrunk down to a tiny residual number of cells."
Prof Watkins said he hoped drug companies would use the research as the basis to carry out clinical trials in cancer patients.
"If you wanted to test what we found in people you would need to get patients who have had a complete remission following chemotherapy and then start them on the treatment to see if it prevented it from coming back," he said.
"But you wouldn't have any immediate way of measuring if the drug worked. You would have to wait 12 months (to see if the cancer regenerated)."
The research was published on Monday in the journal Nature Medicine.
-AAP