The mammary epithelium comprises luminal and basal cells which originate from multipotent mammary stem cells (MaSCs). They form ductal structures embedded in the mammary fat pad in virgin mice and differentiate during pregnancy into alveoli under the control of hormones and growth factors and the activation of specific transcription factors. Genetic manipulations of embryonic stem cells and the derivation of transgenic mice allowed the study of regulatory genes in mammary epithelial cells of particular differentiation states. We describe an alternative approach to investigate stage dependent gene functions in transgenic mammary glands based on ex vivo, genetically manipulated MaSCs and the reconstitution of functional epithelium upon their transplantation into cleared fat pads. Modification of MaSCs with Stat5 suppressing shRNA or a constitutively active variant of Stat5 showed that Stat5 assumes essential roles in alveolar lineage commitment, proliferation, differentiation and survival. Its persistent activation during post-lactational involution causes the formation of non-metastatic adenocarcinomas, resembling the human luminal breast cancer subtype. The tumor cells express estrogen and progesterone receptor (ER+PR+) and activated Stat3 and Stat5. They could become valuable to assess the therapeutic potential of anti-estrogens, aromatase inhibitors and Stat3 and Stat5 inhibition on tumor growth.