Matrix metalloproteinases (MMPs) regulate ductal morphogenesis, apoptosis, and neoplastic progression in mammary epithelial cells. To elucidate the direct effects of MMPs on mammary epithelium, we generated functionally normal cells expressing an inducible autoactivating stromelysin-1 (SL-1) transgene. Induction of SL-1 expression resulted in cleavage of E-cadherin, and triggered progressive phenotypic conversion characterized by disappearance of E-cadherin and catenins from cell–cell contacts, downregulation of cytokeratins, upregulation of vimentin, induction of keratinocyte growth factor expression and activation, and upregulation of endogenous MMPs. Cells expressing SL-1 were unable to undergo lactogenic differentiation and became invasive. Once initiated, this phenotypic conversion was essentially stable, and progressed even in the absence of continued SL-1 expression. These observations demonstrate that inappropriate expression of SL-1 initiates a cascade of events that may represent a coordinated program leading to loss of the differentiated epithelial phenotype and gain of some characteristics of tumor cells. Our data provide novel insights into how MMPs function in development and neoplastic conversion.