Bone morphogenetic proteins (BMPs) are involved in embryonic mammary gland (MG) development and can be dysregulated in breast cancer. However, the role BMPs play in the postnatal MG remains virtually unknown. BMPs are potent morphogens that are involved in cell fate determination, proliferation, apoptosis and adult tissue homeostasis. Twisted gastrulation (TWSG1) is a secreted BMP binding protein that modulates BMP ligand availability in the extracellular space. Here we investigate the consequences of TWSG1 deletion on development of the postnatal MG. At puberty, Twsg1 is expressed in the myoepithelium and in a subset of body cells of the terminal end buds. In the mature duct, Twsg1 expression is primarily restricted to the myoepithelial layer. Global deletion of Twsg1 leads to a delay in ductal elongation, reduced secondary branching, enlarged terminal end buds, and occluded lumens. This is associated with an increase in luminal epithelial cell number and a decrease in apoptosis. In the MG, pSMAD1/5/8 level and the expression of BMP target genes are reduced, consistent with a decrease in BMP signaling. GATA-3, which is required for luminal identity, is reduced in Twsg1(-/-) MGs, which may explain why K14 positive cells, which are normally restricted to the myoepithelial layer, are found within the luminal compartment and shed into the lumen. In summary, regulation of BMP signaling by TWSG1 is required for normal ductal elongation, branching of the ductal tree, lumen formation, and myoepithelial compartmentalization in the postnatal MG.