In contrast to hormone-dependent breast cancer, steroid hormone-induced proliferation in the normal mammary gland does not occur in the steroid-receptor positive cells but rather in adjacent cells via paracrine signaling involving several local growth factors. To help elucidate the mechanisms involved in the block in proliferation in hormone-receptor positive cells, we have utilized a CCAAT/enhancer binding protein (C/EBPbeta)-null mouse model. Loss of this transcription factor results in increased steroid and prolactin receptor expression concomitant with a 10-fold decrease in proliferation in response to pregnancy hormones. To determine the basis for this decrease, several markers of cell cycle progression were analyzed in wild type and C/EBPbeta-null mammary epithelial cells (MECs). These studies indicated that cell cycle progression in C/EBPbeta-null MECs is blocked at the G1/S transition. C/EBPbeta-null mammary glands display substantially increased levels of the activated form of transforming growth factor beta, a potent inhibitor of epithelial cell proliferation, as well as increased downstream Smad2 expression and signaling. While cyclin D1 levels were equivalent, cyclin E expression was markedly reduced in C/EBPbeta-null as compared with wildtype MECs. In addition, increased p27 stability and retention in the nucleus and decreased levels of the cdc25a phosphatase contributed to a significant loss of cdk2 kinase activity. Collectively, these changes prevent C/EBPbeta-null mammary epithelial cells from responding to hormone-induced proliferative signals.