Mammary alveologenesis is abrogated in the absence of the transcription factors STAT5A/5B, which mediate cytokine signaling. To reveal the underlying causes for this developmental block, we studied mammary stem and progenitor cells. While loss of STAT5A/5B did not affect the stem cell population and its ability to form mammary ducts, luminal progenitors were greatly reduced and unable to form alveoli during pregnancy. Temporally controlled expression of transgenic STAT5A in mammary epithelium lacking STAT5A/5B restored the luminal progenitor population and rescued alveologenesis in a reversible fashion in vivo. Thus, STAT5A is necessary and sufficient for the establishment of luminal progenitor cells.