We previously reported that a secreted glycoprotein YKL-40 acts as an angiogenic factor to promote breast cancer angiogenesis. However, its functional role in normal mammary gland development is poorly understood. Here we investigated its biophysiological activity in mammary epithelial development and mammary tissue morphogenesis. YKL-40 was expressed exclusively by ductal epithelial cells of parous and non-parous mammary tissue, but was dramatically up-regulated at the beginning of involution. To mimic ductal development and explore activity of elevated YKL-40 during mammary tissue regression in vivo, we grew a mammary epithelial cell line 76N MECs in a 3-D Matrigel system in the presence of lactogenic hormones including prolactin, hydrocortisone, and insulin. Treatment of 76N MECs with recombinant YKL-40 significantly inhibited acinar formation, luminal polarization, and secretion. YKL-40 also suppressed expression of E-cadherin but increased MMP-9 and cell motility, the crucial mechanisms that mediate mammary tissue remodeling during involution. In addition, engineering of 76N MECs with YKL-40 gene to express ectopic YKL-40 recapitulated the same activities as recombinant YKL-40 in the inhibition of cell differentiation. These results suggest that YKL-40-mediated inhibition of cell differentiation and polarization in the presence of lactogenic hormones may represent its important function during mammary tissue involution. Identification of this biophysiological property will enhance our understanding of its pathologic role in the later stage of breast cancer that is developed from poorly differentiated and highly invasive cells.