An important feature of the mammary gland is the regenerative capacity of its epithelium which is demonstrated upon successive cycles of lactation and involution. Pregnant mice expressing a whey-acidic protein (WAP) promoter-driven transforming growth factor-beta 1 (TGF beta 1) cDNA are unable either to generate a secretory mammary epithelium or to lactate. Here we investigate whether ectopic TGF beta 1 induces this phenotype by affecting the transgenic epithelium directly or in trans. Reciprocal transplantation of mammary tissue between normal and transgenic hosts resulted in the development of the respective phenotypes of the transplants within the same mammary fat pad. When isolated mammary epithelial cells from both were mixed before implantation so that transgenic and normal epithelium would develop together more proximately, both phenotypes were simultaneously observed in the resultant chimeric mammary outgrowths. Since no trans effect was detectable, we hypothesize that early expression of the transgene results in compromised lobular progenitor cells through an intracrine mechanism. Consistent with this posit, WAP promoter-driven protein expression was detected in individual cells of the subtending ducts of immature females at estrus. Transplantation of WAP-TGF beta 1 mammary gland into nonpregnant hosts revealed that transgenic implants, even those from young postpubertal virgin females, had a diminished ability to repopulate epithelium-free mammary fat pads. Accordingly, the ectopic expression of WAP-TGF beta 1 not only impairs lobular progenitors, but also promotes an early senescence of the regenerative capacity of the mammary ductal epithelium. This leads us to propose that mammary epithelial stem cells give rise to two functionally distinct progenitor cells in the mammary gland epithelium: one capable of producing daughters committed to ductal formation, the other capable only of producing daughters committed to lobular function.