Progesterone drives mammary stem and progenitor cell dynamics through paracrine mechanisms that are currently not well understood. Here, we demonstrate that CXCR4, the receptor for stromal-derived factor 1 (SDF-1; CXC12), is a crucial instructor of hormone-induced mammary stem and progenitor cell function. Progesterone elicits specific changes in the transcriptome of basal and luminal mammary epithelial populations, where CXCL12 and CXCR4 represent a putative ligand-receptor pair. In situ, CXCL12 localizes to progesterone-receptor-positive luminal cells, whereas CXCR4 is induced in both basal and luminal compartments in a progesterone-dependent manner. Pharmacological inhibition of CXCR4 signaling abrogates progesterone-directed expansion of basal (CD24CD49f) and luminal (CD24CD49f) subsets. This is accompanied by a marked reduction in CD49bSCA-1 luminal progenitors, their functional capacity, and lobuloalveologenesis. These findings uncover CXCL12 and CXCR4 as novel paracrine effectors of hormone signaling in the adult mammary gland, and present a new avenue for potentially targeting progenitor cell growth and malignant transformation in breast cancer.