We recently reported that the PPM1l gene encodes an endoplasmic reticulum (ER) membrane targeted protein phosphatase (named PP2Ce) with highly specific activity towards Inositol-requiring protein-1 (IRE1) and regulates the functional outcome of ER stress. In the present report, we found that the PP2Ce protein is highly expressed in lactating epithelium of the mammary gland. Loss of PP2Ce in vivo impairs physiological unfolded protein response (UPR) and induces stress kinase activation, resulting in loss of milk production and induction of epithelial apoptosis in the lactating mammary gland. This study provides the first in vivo evidence that PP2Ce is an essential regulator of normal lactation, possibly involving IRE1 signaling and ER stress regulation in mammary epithelium.