The Pea3 Ets transcription factor is overexpressed in breast tumors suggesting that it plays a role in mammary oncogenesis. However, the normal biological function of Pea3 in the mammary gland is not known. Here we report that Pea3 was expressed in the epithelium of the mouse mammary anlagen commensurate with their genesis, and at later times in the nipple and mammary ducts of female embryos. In adult mice Pea3 transcripts peaked at the onset of puberty and early pregnancy, times of active epithelial cell proliferation and differentiation. Pea3 was expressed in all progenitor cap cells and rare body cells of terminal end buds, and in the myoepithelial cells of ducts and alveoli. Analyses of the mammary glands of Pea3-null mice during puberty revealed an increased number of terminal end buds and an increased fraction of proliferating progenitor cells within these structures compared to their wild type littermates. Tissue transplant experiments demonstrated that these phenotypes were intrinsic to the Pea3-null mammary epithelium. During pregnancy, mammary glands isolated from Pea3-null females had impaired alveolar development as revealed by a decreased fraction of alveolar structures. We performed in vitro colony forming assays of mammary epithelial cells and discovered that loss of Pea3 altered the distribution of specific multipotent progenitor cells. Double-immunofluorescence confirmed that multipotential progenitors co-expressing markers of the myoepithelial and luminal epithelial lineage were amplified in the mammary glands of Pea3-null mice by comparison to their wild type counterparts. We propose that Pea3 functions in multipotential progenitors to regulate their lineage-specific differentiation potential.