Studies of C/EBPβ-deficient mice have demonstrated a pivotal role for this transcription factor in hematopoiesis, adipogenesis, and ovarian function. Here we show that C/EBPβ is also essential for normal development and function of the mammary gland. Ductal morphogenesis in virgin C/EBPβ-deficient mice was disrupted, with ducts displaying reduced growth and branching. To distinguish whether the effect of C/EBPβ deficiency on mammary epithelium is indirect or cell autonomous, we performed ovarian and mammary gland transplants. Transplants of wild-type ovaries into mutant females partially restored ductal morphogenesis during puberty but failed to support mammopoiesis during pregnancy. At term, mutant mice harboring wild-type ovaries exhibited reduced alveolar proliferation and impaired epithelial cell differentiation, including a complete absence of milk protein expression. Mammary gland transplant experiments demonstrated that development of C/EBPβ-deficient epithelium was defective within a wild-type stroma and host background. Cell proliferation during pregnancy was reduced and differentiation, as measured by the activity of milk protein genes, was inhibited. However, wild-type epithelium developed in a C/EBPβ-deficient stroma. Thus, C/EBPβ plays an essential, cell autonomous role in the proliferation and differentiation of mammary secretory epithelial cells and is required for the activation of milk protein genes.