A combination of a knockout mouse model, tissue transplantation, and gene expression analysis has been used to investigate the role of steroid hormones in mammary gland development. Mouse mammary gland development was examined in progesterone receptor knockout (PRKO) mice using reciprocal transplantation experiments to investigate the effects of the stromal and epithelial PRs on ductal and lobuloalveolar development. The absence of PR in transplanted donor epithelium, but not in recipient stroma, prevented normal lobuloalveolar development in response to estrogen (E) and progesterone (P) treatment. Conversely, the presence of PR in the transplanted donor epithelium, but not in the recipient stroma, revealed that PR in the stroma may be necessary for ductal development. Members of the Wnt growth factor family, Wnt-2 and Wnt-5B, were employed as molecular markers of steroid hormone action in the mammary gland stroma and epithelium, respectively, to investigate the systemic effects of E and P. Hormonal treatment of intact, ovariectomized, and PR-/- mice and mice after transplantation of PR-/- epithelium into wild type (PR+/+) stroma demonstrated that these two locally acting growth factors are regulated by independent mechanisms. Wnt-2 is acutely repressed by E alone, while Wnt-5B gene expression is induced only after chronic treatment with both E and P. Wnt 5B appears to be one of the few molecular markers of P action in the mammary epithelium. This study suggests that the regulation of mammary gland development by steroid hormones is mediated by distinct effects of the stromal and epithelial PR and differential growth factor expression.