Mammary gland development is controlled by systemic hormones and by growth factors that might complement or mediate hormonal action and provide the signalling basis for mesenchyme-epithelial cross-talk. Two locally expressed factors, pleiotrophin and mammary-derived growth inhibitor (MDGI), their hormonal regulation and proposed functions will be discussed. Pleiotrophin expression in non-tumorigenic, attachment-dependent epithelial cells leads to an attachment-independent, highly tumorigenic phenotype. The fatty acid binding protein MDGI specifically inhibits growth of normal mouse mammary epithelial cells, whereas growth of stromal cells is not suppressed. In mammary gland organ culture, inhibition of ductal growth by MDGI is associated with the appearance of bulbous alveolar end buds and formation of fully developed lobulo-alveolar structures. In parallel, MDGI stimulates its own epithelial-restricted expression and promotes milk protein synthesis. Selective inhibition of endogenous MDGI expression suppresses the appearance of alveolar end buds and lowers the beta-casein level in organ cultures. MDGI activity can be antagonized by epidermal growth factor (EGF); reciprocally, MDGI can suppress the mitogenic effects of EGF. An MDGI-derived C-terminal 11-amino-acid peptide is able to mimic MDGI activity in vitro. In conclusion, members of the family of fatty acid binding proteins are able to regulate mammary gland differentiation locally, and fatty acid binding is not required for this activity.