We have recently described a primary culture system which allows for extensive proliferation and functional differentiation of immature mammary epithelial cells. Herein, these findings are extended to demonstrate that a distinct pattern of ductal and alveolar morphogenesis can be induced within the mammary organoids isolated from virgin female rats and cultured within an Engelbreth-Holm-Swarm sarcoma-derived reconstituted basement membrane under defined serum-free conditions. The lobular and multilobular organoids that emerged resemble the alveoli of the mammary gland in gross form, multicellular architecture, and cytologic and functional differentiation, while the ductal organoids expressed characteristics typical of mammary gland ducts in vivo. The epithelial cells within the alveolar- and duct-like organoids displayed the capability of secreting two morphologically distinct milk products, casein and lipid, into the luminal compartment. The expression of histiotypic morphogenesis and mammary-specific functional differentiation by the cultured mammary organoids proceeded in the absence of a morphologically distinct basal lamina. We illustrate that development highly reminiscent of that which naturally occurs in the mammary gland in vivo can be induced and supported in vitro under defined serum-free conditions. In addition, the methodologies are available to simultaneously monitor mammary organoid morphogenesis, growth, and functional differentiation. This system should serve as a unique model in which the regulation of branching morphogenesis, development, gene expression, and transformation can be examined.