17β-estradiol (E2) induces the post-natal development of mammary gland and influences breast carcinogenesis by binding to the estrogen receptor ERα. ERα acts as a ligand activable transcription factor but also elicits rapid signaling through a fraction of ERα expressed at the membrane. Here, we used the C451A-ERα mouse model mutated for the palmitoylation site to understand how ERα membrane signaling affects mammary gland development. While the overall structure of physiological mammary gland development is slighly affected, both epithelial fragments and basal cells isolated from C451A-ERα mammary glands failed to grow when engrafted into cleared WT fat pads, even in pregnant hosts. Similarly, basal cells purified from hormone-stimulated ovariectomized C451A-ERα mice did not produce normal outgrowths. Ex vivo, C451A-ERα basal cells displayed reduced matrix degradation capacities, suggesting altered migration properties. More importantly, C451A-ERα basal cells recovered in vivo repopulating ability when co-transplanted with WT luminal cells and specifically with ERα-positive luminal cells. Transcriptional profiling identified crucial paracrine luminal-to-basal signals. Altogether, our findings uncover an important role for membrane ERα expression in promoting intercellular communications essential for mammary gland development.