Parathyroid hormone-related protein (PTHrP) was originally discovered as a tumor product that causes humoral hypercalcemia of malignancy. PTHrP is now known to be widely expressed in normal tissues and growing evidence suggests that it is an important developmental regulatory molecule. We had previously reported that overexpression of PTHrP in the mammary glands of transgenic mice impaired branching morphogenesis during sexual maturity and early pregnancy. We now demonstrate that PTHrP plays a critical role in the epithelial-mesenchymal communications that guide the initial round of branching morphogenesis that occurs during the embryonic development of the mammary gland. We have rescued the PTHrP-knockout mice from neonatal death by transgenic expression of PTHrP targeted to chondrocytes. These rescued mice are devoid of mammary epithelial ducts. We show that disruption of the PTHrP gene leads to a failure of the initial round of branching growth that is responsible for transforming the mammary bud into the rudimentary mammary duct system. In the absence of PTHrP, the mammary epithelial cells degenerate and disappear. The ability of PTHrP to support embryonic mammary development is a function of amino-terminal PTHrP, acting via the PTH/PTHrP receptor, for ablation of the PTH/PTHrP receptor gene recapitulates the phenotype of PTHrP gene ablation. We have localized PTHrP expression to the embryonic mammary epithelial cells and PTH/PTHrP receptor expression to the mammary mesenchyme using in situ hybridization histochemistry. Finally, we have rescued mammary gland development in PTHrP-null animals by transgenic expression of PTHrP in embryonic mammary epithelial cells. We conclude that PTHrP is a critical epithelial signal received by the mammary mesenchyme and involved in supporting the initiation of branching morphogenesis.