Our laboratory has been studying the mechanisms by which hormones regulate the expression of differentiated function in the normal mammary gland and how these regulatory mechanisms have deviated in breast cancer. Two rat milk protein genes, encoding beta-casein and whey acidic protein, have been employed as molecular markers of mammary epithelial cell differentiation. Composite response elements containing multiple binding sites for several transcription factors mediate the hormonal and developmental regulation of milk protein gene expression. In the whey protein gene promoters, these include binding sites for nuclear factor (NF)-I, as well as the glucocorticoid receptor (GR) and signal transducers and activators of transcription (Stat5). In the casein promoters, these include binding sites for Stat5, Yin Yang 1 (YY1), GR and the CCAAT/enhancer binding protein (C/EBP). The C/EBP family of DNA binding proteins may play a pivotal role in maintaining the balance between cell proliferation and terminal differentiation in mammary epithelial cells. During normal mammary gland development, expression of LIP (liver-enriched inhibitory protein, a dominant-negative isoform of C/EBP beta) is hormonally regulated and correlates with cell proliferation during pregnancy. LIP can form heterodimers with other C/EBP family members and suppress their transcriptional activity. In contrast, C/EBP alpha is predominantly expressed during lactation following terminal differentiation. Elevated LIP levels have been detected in mouse, rat and human breast tumours of different aetiologies. This provides a mechanism, therefore, to block terminal differentiation and facilitate continued proliferation.