Although it is well established that women with germ-line mutations in the BRCA1 gene have a greatly increased lifetime incidence of breast and ovarian cancer, the molecular mechanisms responsible for this tissue-specific carcinogenesis remain undefined. The majority of these breast cancers are of the basal-like phenotype characterized by lack of expression of ER, PR, and ERBB2. Because this phenotype has been proposed to resemble that of normal breast stem cells, we examined the role of BRCA1 in human mammary stem cell fate. Using both in vitro systems and a humanized NOD/SCID mouse model, we demonstrate that BRCA1 expression is required for the differentiation of ER-negative stem/progenitor cells to ER-positive luminal cells. Knockdown of BRCA1 in primary breast epithelial cells leads to an increase in cells displaying the stem/progenitor cell marker ALDH1 and a decrease in cells expressing luminal epithelial markers and estrogen receptor. In breast tissues from women with germ-line BRCA1 mutations, but not normal controls, we detect entire lobules that, although histologically normal, are positive for ALDH1 expression but are negative for the expression of ER. Loss of heterozygosity for BRCA1 was documented in these ALDH1-positive lobules but not in adjacent ALDH1-negative lobules. Taken together, these studies demonstrate that BRCA1 plays a critical role in the differentiation of ER-negative stem/progenitor cells to ER-positive luminal cells. Because BRCA1 also plays a role in DNA repair, our work suggests that loss of BRCA1 may result in the accumulation of genetically unstable breast stem cells, providing prime targets for further carcinogenic events.