The transcription factor Elf5 plays an important role in mammary gland development. However, because of the embryonic lethality of Elf5 straight knockout mice, prior studies have been limited to experiments with Elf5 haploinsufficient animals, overexpression systems or transplants. Here, we have utilized K14-Cre to generate mammary-gland specific Elf5 conditional knockout mice. During pregnancy, Elf5-null mammary epithelium completely failed to initiate alveologenesis, and a characteristic of virgin ductal epithelial cells persisted postpartum. We demonstrate that the loss of Elf5 leads to the absence of alveolar secretory markers confirming previous published data. Interestingly, the developmental block due to a lack of Elf5 could not be restored by multiple gestations. Elf5-null mammary epithelial cells also display disorganized cell structures as evident by altered cell polarities, which might be the cause for collapsed lumina. We observe reduced levels of Stat5 and attenuated Stat5 activity as measured by p-Stat5 levels both in Elf5-null mammary glands as well as cultured mammary epithelial cells. This data suggests that the failure of alveolar and lactogenic differentiation due to the loss of Elf5 is mediated in part due to impaired Stat5 activity. In support of this hypothesis, we show by ChIP experiments that Stat5a promoter contains a conserved Elf5-binding site that is occupied by Elf5 in mammary glands. Mammary epithelia lacking Elf5 exhibited downregulation of several other critical genes involved in alveologenesis, suggesting Elf5 as a master regulator in alveolar development. We propose a model for Elf5-mediated alveolar development, in which Elf5 regulates the expression of key mediators of the PrlR/Jak2/Stat5 signaling pathway.