The study of normal breast epithelial morphogenesis and carcinogenesis in vivo has largely used rodent models. Efforts at studying mammary morphogenesis and cancer with xenotransplanted human epithelial cells have failed to recapitulate the full extent of development seen in the human breast. We have developed an orthotopic xenograft model in which both the stromal and epithelial components of the reconstructed mammary gland are of human origin. Genetic modification of human stromal cells before the implantation of ostensibly normal human mammary epithelial cells resulted in the outgrowth of benign and malignant lesions. This experimental model allows for studies of human epithelial morphogenesis and differentiation in vivo and underscores the critical role of heterotypic interactions in human breast development and carcinogenesis.