The transcription factor Gata-3 is a defining marker of the 'luminal' subtypes of breast cancer. To gain insight into the role of Gata-3 in breast epithelial development and oncogenesis, we have explored its normal function within the mammary gland by conditionally deleting Gata-3 at different stages of development. We report that Gata-3 has essential roles in the morphogenesis of the mammary gland in both the embryo and adult. Through the discovery of a novel marker (beta3-integrin) of luminal progenitor cells and their purification, we demonstrate that Gata-3 deficiency leads to an expansion of luminal progenitors and a concomitant block in differentiation. Remarkably, introduction of Gata-3 into a stem cell-enriched population induced maturation along the alveolar luminal lineage. These studies provide evidence for the existence of an epithelial hierarchy within the mammary gland and establish Gata-3 as a critical regulator of luminal differentiation.