Signal transducer and activator of transcription (Stat)5 was originally identified as a mammary gland factor (MGF) that binds to promoter sequences of milk protein genes and activates their transcription. We have generated isoform-specific antibodies against Stat5a or Stat5b and show that both isoforms are present in similar amounts at the protein level in mammary tissues of virgin, pregnant, lactating, and involuting mice. In contrast, Stat5 phosphorylation is very low in immature virgins, rises sharply during late pregnancy, and declines rapidly during involution. Upon phosphorylation, Stat5a and Stat5b form homo- and heterodimers. The induction of Stat5 phosphorylation during late pregnancy correlates with the transcriptional activation of milk protein genes. Using electrophoretic mobility shift assay and supershift analysis, we demonstrated that the DNA-binding activity detected during lactation is composed of both Stat5a and Stat5b, but not of other STATs. The hypothesis that Stat5 is directly involved in mammary cell differentiation was tested in estrous cycle and in transgenic mice with impaired mammary development. Transient differentiation of mammary alveolar cells and milk protein gene expression during estrus in virgin female mice coincide with transient Stat5 phosphorylation. Impaired mammary development and very low levels of milk protein gene expression in mice carrying the truncated form of the cell fate protein Int3 correlated with reduced phosphorylation and heterodimer formation.