Estrogen receptor alpha (ERalpha) plays a key role in mammary gland development and is implicated in breast cancer through the transcriptional regulation of genes linked to proliferation and apoptosis. We previously reported that hexamethylene bisacetamide inducible protein 1 (HEXIM1) inhibits the activity of ligand-bound ERalpha and bridges a functional interaction between ERalpha and positive transcription elongation factor b (P-TEFb). To examine the consequences of a functional HEXIM1-ERalpha-P-TEFb interaction in vivo, we generated MMTV/HEXIM1 mice that exhibit mammary epithelial-specific and doxycycline-inducible expression of HEXIM1. Increased HEXIM1 expression in the mammary gland decreased estrogen-driven ductal morphogenesis and inhibited the expression of cyclin D1 and serine 2 phosphorylated RNA polymerase II (S2P RNAP II). In addition, increased HEXIM1 expression in MCF-7 cells led to a decrease in estrogen-induced cyclin D1 expression, whereas down-regulation of HEXIM1 expression led to an enhancement of estrogen-induced cyclin D1 expression. Studies on the mechanism of HEXIM1 regulation on estrogen action indicated a decrease in estrogen-stimulated recruitment of ERalpha, P-TEFb, and S2P RNAP II to promoter and coding regions of ERalpha-responsive genes pS2 and CCND1 with increased HEXIM1 expression in MCF-7 cells. Notably, increased HEXIM1 expression decreased only estrogen-induced P-TEFb activity. Whereas there have been previous reports on HEXIM1 inhibition of P-TEFb activity, our studies add a new dimension by showing that E(2)/ER is an important regulator of the HEXIM1/P-TEFb functional unit in breast cells. Together, these studies provide novel insight into the role of HEXIM1 and ERalpha in mammary epithelial cell function.