Dysregulation of epigenetic controls is associated with tumorigenesis in response to microenvironmental stimuli; however, the regulatory pathways involved in epigenetic dysfunction are largely unclear. We have determined that a critical epigenetic regulator, microRNA-205 (miR-205), is repressed by the ligand jagged1, which is secreted from the tumor stroma to promote a cancer-associated stem cell phenotype. Knockdown of miR-205 in mammary epithelial cells promoted epithelial-mesenchymal transition (EMT), disrupted epithelial cell polarity, and enhanced symmetric division to expand the stem cell population. Furthermore, miR-205-deficient mice spontaneously developed mammary lesions, while activation of miR-205 markedly diminished breast cancer stemness. These data provide evidence that links tumor microenvironment and microRNA-dependent regulation to disruption of epithelial polarity and aberrant mammary stem cell division, which in turn leads to an expansion of stem cell population and tumorigenesis. This study elucidates an important role for miR-205 in the regulation of mammary stem cell fate, suggesting a potential therapeutic target for limiting breast cancer genesis.