17 beta-Estradiol induces the postnatal development of mammary gland and influences breast carcinogenesis by binding to the estrogen receptor ER alpha. ER alpha acts as a transcription factor but also elicits rapid signaling through a fraction of ER alpha expressed at the membrane. Here, we have used the C451A-ER alpha mouse model mutated for the palmitoylation site to understand how ER alpha membrane signaling affects mammary gland development. Although the overall structure of physiological mammary gland development is slightly affected, both epithelial fragments and basal cells isolated from C451A-ER alpha mammary glands failed to grow when engrafted into cleared wild-type fat pads, even in pregnant hosts. Similarly, basal cells purified from hormone-stimulated ovariectomized C451A-ER alpha mice did not produce normal outgrowths. Ex vivo, C451A-ER alpha basal cells displayed reduced matrix degradation capacities, suggesting altered migration properties. More importantly, C451A-ER alpha basal cells recovered in vivo repopulating ability when co-transplanted with wild-type luminal cells and specifically with ER alpha-positive luminal cells. Transcriptional profiling identified crucial paracrine luminal-to-basal signals. Altogether, our findings uncover an important role for membrane ER alpha expression in promoting intercellular communications that are essential for mammary gland development.