Differentiation of mammary epithelium in vivo requires signaling through prolactin- and ErbB4/HER4-dependent mechanisms; how these pathways intersect is unknown. We show herein that HC11 mouse mammary cells undergo ErbB4-dependent lactational differentiation. Prolactin and the ErbB4 ligand HB-EGF each induced STAT5A activation, expression of lactogenic differentiation markers, and lumen formation in three-dimensional Matrigel cultures in HC11 cells. ErbB4 undergoes ligand-dependent transmembrane domain cleavage at Val-675, releasing a soluble 80-kDa intracellular domain (s80(HER4)) that localizes to nuclei; the physiological relevance of s80(HER4) is unknown. A HER4(V675A) mutant abolishing transmembrane cleavage impaired STAT5A activity, lactogenic gene expression, and lumen formation. Kinase-dead HER4(KD) was neither cleaved nor able to induce differentiation of HC11 cells. Without treating HC11 cells with prolactin or HB-EGF, s80(HER4) (expressed from a cDNA construct) localized to the nucleus, activated STAT5A, and induced three-dimensional lumen formation. Nuclear localization of exogenous s80(HER4) required intact kinase activity of s80(HER4), as did activation of STAT5A. In contrast, nuclear localization of s80(HER4) and STAT5A activation did not require the 16-amino acid region of the ErbB4 intracellular domain specific to the Cyt-1 isoform of ErbB4, and absent in the Cyt-2 isoform. These results suggest that s80(HER4) formation contributes to ErbB4-dependent differentiation of mammary epithelial cells.