An essential feature of mammary gland differentiation during pregnancy is the formation of alveoli composed of polarized epithelial cells, which, under the influence of lactogenic hormones, secrete vectorially and sequester milk proteins. Previous culture studies have described either organization of cells polarized towards lumina containing little or no demonstrable tissue-specific protein, or establishment of functional secretory cells exhibiting little or no glandular architecture. In this paper, we report that tissue-specific vectorial secretion coincides with the formation of functional alveoli-like structures by primary mammary epithelial cells cultured on a reconstituted basement membrane matrix (derived from Engelbreth-Holm-Swarm murine tumour). Morphogenesis of these unique three-dimensional structures was initiated by cell-directed remodelling of the exogenous matrix leading to reorganization of cells into matrix-ensheathed aggregates by 24 h after plating. The aggregates subsequently cavitated, so that by day 6 the cells were organized into hollow spheres in which apical cell surfaces faced lumina sealed by tight junctions and basal surfaces were surrounded by a distinct basal lamina. The profiles of proteins secreted into the apical (luminal) and basal (medium) compartments indicated that these alveoli-like structures were capable of an appreciable amount of vectorial secretion. Immunoprecipitation with a broad spectrum milk antiserum showed that more than 80% of caseins were secreted into the lumina, whereas iron-binding proteins (both lactoferrin and transferrin) were present in comparable amounts in each compartment. Thus, these mammary cells established protein targeting pathways directing milk-specific proteins to the luminal compartment. A time course monitoring secretory activity demonstrated that establishment of tissue-specific vectorial secretion and increased total and milk protein secretion coincided with functional alveolar-like multicellular architecture. This culture system is unique among models of epithelial cell polarity in that it demonstrates several aspects of epithelial cell polarization: vectorial secretion, apical junctions, a sequestered compartment and formation of a basal lamina. These lumina-containing structures therefore reproduce the dual role of mammary epithelia to secrete vectorially and to sequester milk proteins. Thus, in addition to maintaining tissue-specific cytodifferentiation and function, a basement membrane promotes the expression of tissue-like morphogenesis.