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A mammary-derived growth inhibitor-related gene (MRG) was previously identified and characterized. MRG induces differentiation of mammary epithelial cells in vitro and its expression is associated with mammary differentiation. To further define the role of MRG on mammary gland differentiation, a MRG transgenic mice model under the control of mouse mammary tumor virus promoter was established and the effect of MRG on mammary gland differentiation was investigated at histological and molecular levels. Expression of endogenous mouse MRG gene was significantly increased from the non-differentiated gland of control virgin mice to the functionally differentiated gland of pregnant control mice. Whole mount analyses demonstrated that ductal development was not affected by MRG transgene expression. While there was no lobuloalveolar structure in control virgin mice, expression of MRG transgene in the mammary gland resulted in the development of lobuloalveolar-like structure, which mimics the gland from early pregnancy. Consistent with the morphological change, expression of MRG also increased milk protein β-casein expression in the gland. To study the mechanism of MRG-induced mammary differentiation, we investigated the Stat5 activation in the glands from the transgenic mouse versus virgin control mouse. While activated Stat5 was expressed at the minimal level in the non-differentiated control virgin gland, a significant Stat5 phosphorylation was observed in the virgin transgenic gland. Our data indicate that MRG is a mediator of the differentiating effects of pregnancy on breast epithelium, and overexpression of MRG in young nulliparous mice can induce differentiation. [ABSTRACT FROM AUTHOR]