A variety of human malignancies, including breast cancer, are thought to be organized in a hierarchy, whereby a relatively minor population of tumor initiating cells (TIC) is responsible for tumor growth and the vast majority of remaining cells is nontumorigenic. Analysis of TICs in model systems of breast cancer would offer uniform and accessible source of tumor cells and the power of mouse genetics to dissect these rare cells. The HER2/Neu proto-oncogene is overexpressed in an aggressive form of human breast cancer. Mouse mammary tumor virus (MMTV)-Neu transgenic mice develop mammary tumors that mimic human HER2 subtype breast cancer. Here, we report on the functional identification of mouse HER2/Neu TICs that can induce tumors after transplantation into the mammary gland of recipient mice. Secondary tumors formed after injecting MMTV-Neu TICs resemble primary tumors in the original transgenic mice and are organized in a hierarchy containing TICs as well as their nontumorigenic descendants. To study MMTV-Neu TICs in vitro, we grew tumorspheres under nonadherent culture conditions. Tumorsphere forming units (TFU) capable of producing tumorspheres retained tumorigenic potential and were indistinguishable by several criteria from TICs. Interestingly, MMTV-Neu TICs and TFUs were committed to the luminal cell fate when induced to differentiate in vitro. Our data define reproducible characteristics of the MMTV-Neu TIC and TFU, which help to explain marker expression profiles of HER2-positive breast cancer. In addition, the similarity between TICs and TFUs in this system provides a rationale for TFU-based screens to target tumor-initiating cells in HER2(+) breast cancer.