ErbB2/Neu destabilizes the cyclin-dependent kinase (Cdk) inhibitor p27 and increases expression of cyclin D1. Therefore, we studied the roles of p27 and cyclin D1 in ErbB2-mediated mammary epithelial cell transformation. Overexpression of ErbB2 or cyclin D1 in p27^+/− primary murine mammary epithelial cells resulted in increased proliferation, cyclin D1 nuclear localization, and colony formation in soft agar compared to those in p27^+/+ cells. In contrast, ErbB2- or cyclin D1-overexpressing p27^−/− cells displayed reduced proliferation, anchorage-independent growth, Cdk4 activity, cyclin D1 expression, and cyclin D1 nuclear localization compared to wild-type cells. A cyclin D1 mutation in its nuclear export sequence (T286A) partially rescued nuclear localization of cyclin D1 in p27^−/− cells but did not increase proliferation or Cdk4 kinase activity. Overexpression of E2F1, however, increased proliferation to the same degree in p27^+/+ , p27^+/− , and p27^−/− cells. Mammary glands from MMTV (mouse mammary tumor virus)-neu/p27^+/− mice exhibited alveolar hyperplasia, enhanced proliferation, decreased apoptosis, and accelerated tumor formation compared to MMTV-neu/p27^+/+ glands. However, MMTV-neu/p27^−/− glands showed decreased proliferation, cyclin D1 expression, and Cdk4 activity, as well as markedly prolonged tumor latency, compared to MMTV-neu/p27^+/+ glands. These results suggest that p27^+/− mammary epithelium may be more susceptible to oncogene-induced tumorigenesis, whereas p27-null glands, due to severely impaired cyclin D1/Cdk4 function, are more resistant to transformation.