We previously reported that STAT1 expression is frequently abrogated in human estrogen receptor-α-positive (ERα(+)) breast cancers and mice lacking STAT1 spontaneously develop ERα(+) mammary tumors. However, the precise mechanism by which STAT1 suppresses mammary gland tumorigenesis has not been fully elucidated. Here we show that STAT1-deficient mammary epithelial cells (MECs) display persistent prolactin receptor (PrlR) signaling, resulting in activation of JAK2, STAT3 and STAT5A/5B, expansion of CD61(+) luminal progenitor cells and development of ERα(+) mammary tumors. A failure to upregulate SOCS1, a STAT1-induced inhibitor of JAK2, leads to unopposed oncogenic PrlR signaling in STAT1(-/-) MECs. Prophylactic use of a pharmacological JAK2 inhibitor restrains the proportion of luminal progenitors and prevents disease induction. Systemic inhibition of activated JAK2 induces tumor cell death and produces therapeutic regression of pre-existing endocrine-sensitive and refractory mammary tumors. Thus, STAT1 suppresses tumor formation in mammary glands by preventing the natural developmental function of a growth factor signaling pathway from becoming pro-oncogenic. In addition, targeted inhibition of JAK2 may have significant therapeutic potential in controlling ERα(+) breast cancer in humans.