The role of estrogen in promoting mammary stem cell proliferation remains controversial. It is unclear if estrogen receptor (ER)–expressing cells have stem/progenitor activity themselves or if they act in a paracrine fashion to stimulate stem cell proliferation. We have used flow cytometry to prospectively isolate mouse mammary ER-expressing epithelial cells and shown, using analysis of gene expression patterns and cell type–specific markers, that they form a distinct luminal epithelial cell subpopulation that expresses not only the ER but also the progesterone and prolactin receptors. Furthermore, we have used an in vivo functional transplantation assay to directly demonstrate that the ER-expressing luminal epithelial subpopulation contains little in vivo stem cell activity. Rather, the mammary stem cell activity is found within the basal mammary epithelial cell population. Therefore, ER-expressing cells of the mammary epithelium are distinct from the mammary stem cell population, and the effects of estrogen on mammary stem cells are likely to be mediated indirectly. These results are important for our understanding of cellular responses to hormonal stimulation in the normal breast and in breast cancer.