Epithelial-mesenchymal crosstalk is essential for tissue morphogenesis, but incompletely understood. Postnatal mammary gland development requires epidermal growth factor receptor (EGFR) and its ligand amphiregulin (AREG),which generally must be cleaved from its transmembrane form in order to function. As the transmembrane metalloproteinase ADAM17 can process AREG in culture and Adam17–/– mice tend to phenocopy Egfr–/– mice, we examined the role of each of these molecules in mammary development. Tissue recombination and transplantation studies revealed that EGFR phosphorylation and ductal development occur only when ADAM17 and AREG are expressed on mammary epithelial cells, whereas EGFR is required stromally, and that local AREG administration can rescue Adam17–/–transplants. Several EGFR agonists also stimulated Adam17–/– mammary organoid growth in culture,but only AREG was expressed abundantly in the developing ductal system in vivo. Thus, ADAM17 plays a crucial role in mammary morphogenesis by releasing AREG from mammary epithelial cells, thereby eliciting paracrine activation of stromal EGFR and reciprocal responses that regulate mammary epithelial development.