The development of the mammary gland is unique: the final stages of development occur postnatally at puberty under the influence of hormonal cues. Furthermore, during the life of the female, the mammary gland can undergo many rounds of expansion and proliferation. The mammary gland thus provides an excellent model for studying the ‘stem/progenitor’ cells that allow this repeated expansion and renewal. In this Review, we provide an overview of the different cell types that constitute the mammary gland, and discuss how these cell types arise and differentiate. As cellular differentiation cannot occur without proper signals, we also describe how the tissue microenvironment influences mammary gland development.