Mammary epithelium is organized as a bilayer with a layer of luminal secretory cells and a layer of basal myoepithelial cells. To dissect the specific functions of these two major compartments of the mammary epithelium in mammary morphogenesis we have used genetically modified mice carrying transgenes or conditional alleles whose expression or ablation were cell-type specific. Basal cells are located in close proximity to mammary stroma and directly interact with the extracellular matrix (basement membrane) during all their lifespan. On the contrary, luminal secretory cells during early stages of the postnatal mammary development have only limited contacts with basement membrane and become exposed to the extracellular matrix only during late developmental stages at the end of pregnancy and in lactation. Consistently perturbation of beta1-integrin function specifically in the luminal layer of the mammary epithelium, did not interfere with mammary morphogenesis until the second part of pregnancy but led to impaired secretory differentiation and lactation. On the contrary, ablation of beta1-integrin gene in the basal mammary epithelial cells resulted in a more precocious phenotype: disorganized branching in young virgin animals and a complete arrest of lobuloalveolar development. Further, a constitutive activation of beta-catenin signaling due to expression of N-terminally truncated (stabilized) beta-catenin specifically in basal myoepithelial cells resulted in accelerated differentiation of luminal secretory cells in pregnancy, precocious postlactational involution, increased angiogenesis and development of mammary tumors. Altogether these data suggest that basal mammary epithelial cells can affect growth and differentiation of luminal secretory cells, have an impact on the epithelium-stroma relationships and, thereby, play an important role in the process of mammary morphogenesis and differentiation.