Cadherins are cell adhesion molecules involved in cell-cell adhesion, signalling, and cellular proliferation and differentiation. E-cadherin is required for the formation of epithelium in vivo. We investigated the contribution of the cytoplasmic domain of E-cadherin to adhesion, signalling, and differentiation during murine mammary gland development, by in vivo expression of a gene encoding a truncated form of E-cadherin lacking the extracellular domain. The expression of this gene in mammary epithelial cells during pregnancy induced precocious lobular epithelial morphogenesis associated with morphological differentiation and the early synthesis of various molecules (advanced milk fat globule appearance and milk protein production). After delivery, when a fully differentiated and secretory epithelium is required for lactation, the cytoplasmic domain of E-cadherin had a dominant-negative effect on cell-cell adhesion and affected the structure and function of the epithelium. This also led to the partial loss of epithelial polarisation and changes in the basement membrane, both important in malignancy. Thus, the cytoplasmic domain of E-cadherin induces epithelial morphogenesis, but also alters the cohesiveness of the fully differentiated epithelium.