The organization and maintenance of complex tissues requires emergent properties driven by self-organizing and self-limiting cell-cell interactions. We examined these interactions in the murine mammary gland. Luminal and myoepithelial subpopulations of the postnatal mammary gland arise from unipotent progenitors, but the destiny of cap cells, which enclose terminal end buds (TEB) in pubertal mice, remains controversial. Using a transgenic strain (Tg11.5kb-GFP) that specifically marks cap cells, we found ~50% of these cells undergo divisions perpendicular to the TEB surface, suggesting they might contribute to the underlying luminal cell population. To address their stemness potential we developed a lineage tracing mouse driven from the s-SHIP (11.5 kb) promoter. Induction of tdTomato (tdTom) from this promoter in vivo demonstrated that all cap cell progeny are myoepithelial, with no conversion to luminal lineage. Organoid cultures also exhibited unipotency. However, isolated cap cells cultured as mammospheres generated mixed luminal/myoepithelial spheres. Moreover, ablation of luminal cells in vivo using diphtheria toxin triggered repopulation by progeny of tdTom+ cap cells. A signaling inhibitor screen identified the TGFb pathway as a potential regulator of multipotency. TGFbR inhibitors or gene deletion blocked conversion to the luminal lineage, consistent with an autocrine loop in which cap cells secrete TGFb to activate the receptor and promote luminal transdifferentiation. Ductal tree regeneration in vivo from isolated cap cells was much more efficient when they were pre-treated with inhibitor, consistent with more cells retaining cap cell potential prior to transplantation. Notably, in vitro transdifferentiation of cap cells was blocked by co-culture with luminal cells. Overall, these data reveal a self-limiting cell circuit through which mammary luminal cells suppress cap cell conversion to the luminal lineage.