Recent studies indicate that a subset of cancer cells possessing stem cell properties, referred to as cancer-initiating or cancer stem cells (CSCs), have crucial roles in tumor initiation, metastasis and resistance to anticancer therapies. Transforming growth factor (TGF)-β and their family members have been implicated in both normal (embryonic and somatic) stem cells and CSCs. In this study, we observed that exposure to TGF-β increased the population of breast cancer (BC) cells that can form mammospheres in suspension, a feature endowed by stem cells. This was mediated by the micro (mi) RNA family miR-181, which was upregulated by TGF-β at the post-transcriptional level. Levels of the miR-181 family members were elevated in mammospheres grown in undifferentiating conditions, compared with cells grown in two-dimensional conditions. Ataxia telangiectasia mutated (ATM), a target gene of miR-181, exhibited reduced expression in mammospheres and upon TGF-β treatment. Overexpression of miR-181a/b, or depletion of ATM or its substrate CHK2, was sufficient to induce sphere formation in BC cells. Finally, knockdown of ATM enhanced in vivo tumorigenesis of the MDA361 BC cells. Our results elucidate a novel mechanism through which the TGF-β pathway regulates the CSC property by interfering with the tumor suppressor ATM, providing insights into the cellular and environmental factors regulating CSCs, which may guide future studies on therapeutic strategies targeting these cells.