Branching morphogenesis within the peripubertal mouse mammary gland is directed by progesterone (P). A role for the homeobox-containing transcription factor, Msx2, during branching morphogenesis is suggested from its ontogenic expression profile and hormonal regulation. Herein, we define the spatio-temporal control of Msx2 expression, the regulation of its expression by P and its direct role in ductal branching morphogenesis. P induces Msx2 in the presence of estrogen (E) both in vitro and in vivo while absence of the P receptor (PR) decreased Msx2 expression. Stable transfection of PR into mouse mammary epithelial cells increased the endogenous expression of Msx2 and their ability to undergo branching morphogenesis in vitro. Furthermore, normal mammary cells stably-transfected with Msx2 demonstrated increased branching morphogenesis in vitro while transgenic mice expressing Msx2 in their mammary glands demonstrated enhanced lateral branching during early development. The action of P on branching morphogenesis appears to involve Bmp2/4. Together, these data demonstrate that P, acting through PR-A and the Bmp2/4 pathway, induces Msx2 to enhance ductal branching in the mammary glands.