Regulatory factors controlling stem cell identity and self-renewal are often active in aggressive cancers and are thought to promote their growth and progression. TCF3 (also known as TCF7L1) is a member of the TCF/LEF transcription factor family that is central in regulating epidermal and embryonic stem (ES) cell identity. We found that TCF3 is highly expressed in poorly differentiated human breast cancers, preferentially of the basal-like subtype. This suggested that TCF3 is involved in the regulation of breast cancer cell differentiation state and tumorigenicity. Silencing of TCF3 dramatically decreased the ability of breast cancer cells to initiate tumor formation, and led to decreased tumor growth rates. In culture, TCF3 promotes the sphere formation capacity of breast cancer cells and their self-renewal. We found that in contrast to ES cells, where it represses Wnt-pathway target genes, TCF3 promotes the expression of a subset of Wnt-responsive genes in breast cancer cells, while repressing another distinct target subset. In the normal mouse mammary gland Tcf3 is highly expressed in terminal end buds, structures that lead duct development. Primary mammary cells are dependent on Tcf3 for mammosphere formation, and its overexpression in the developing gland disrupts ductal growth. Our results identify TCF3 as a central regulator of tumor growth and initiation, and a novel link between stem cells and cancer.