The basal cell layer has emerged as a critical player in cancer progression, and understanding the molecular contribution of specific cell types is important in treatment and prevention. The adhesion receptor CD44, which mediates epithelial-stromal and cell-cell interactions, has been shown to both promote and suppress tumor progression. To better understand the normal function of CD44, we have investigated its role in mouse mammary gland development and its expression in human breast and prostate cancer. We have found that CD44 is expressed in the myoepithelium of the developing mammary gland and modulates ductal development of FVB/N mice. The loss of CD44 results in defective luminal-myoepithelial cell-cell adhesion and promotes the mixing of luminal and myoepithelial layers, disrupting epithelial bilayer organization, and CD44-null mice experience delayed ductal outgrowth and impaired terminal end bud formation. The myoepithelial expression of CD44 is also relevant to its expression in cancer, as CD44 is expressed in the basal cells of early-stage breast and prostate cancer but exhibits altered localization with increasing tumorigenicity and is strongly expressed by tumor epithelium.