DACH1 abundance is reduced in human malignancies, including breast cancer. Herein DACH1 was detected among multipotent fetal mammary stem cells in the embryo, among mixed lineage precursors, and in adult basal cells and (ER alpha(+)) luminal progenitors. Dachl gene deletion at 6 weeks in transgenic mice reduced ductal branching, reduced the proportion of mammary basal cells (Lin(-) CD24(med) CD29(high)) and reduced abundance of basal cytokeratin 5, whereas DACH1 overexpression induced ductal branching, increased Gata3 and Notchl, and expanded mammosphere formation in LA-7 breast cells. Mammary gland-transforming growth factor beta (TGF-beta) activity, known to reduce ductal branching and to reduce the basal cell population, increased upon Dachl deletion, associated with increased SMAD phosphorylation. Association of the scaffold protein Smad anchor for receptor activation with Smad2/3, which facilitates TGF-beta activation, was reduced by endogenous DACH1. DACH1 increases basal cells, enhances ductal formation and restrains TGF-beta activity in vivo.