Fibroblast growth factor (FGF) signaling is essential for vertebrate organogenesis, including mammary gland development. The mechanism whereby FGF signaling is regulated in the mammary gland, however, has remained unknown. Using a combination of mouse genetics and 3D ex vivo models, we tested the hypothesis that Spry2 gene, which encodes an inhibitor of signaling via receptor tyrosine kinases (RTKs) in certain contexts, regulates FGF signaling during mammary branching. We found that Spry2 is expressed at various stages of the developing mammary gland. Targeted removal of Spry2 function from mammary epithelium leads to accelerated epithelial invasion. Spry2 is up-regulated by FGF signaling activities and its loss sensitizes mammary epithelium to FGF stimulation, as indicated by increased expression of FGF target genes and epithelia invasion. By contrast, Spry2 gain-of-function in the mammary epithelium results in reduced FGF signaling, epithelial invasion, and stunted branching. Furthermore, reduction of Spry2 expression is correlated with tumor progression in the MMTV-PyMT mouse model. Together, the data show that FGF signaling modulation by Spry2 is essential for epithelial morphogenesis in the mammary gland and it functions to protect the epithelium against tumorigenesis.