Mammary epithelium is a bilayered ductal network composed of luminal and basal epithelial cells, which together drive the growth and functional differentiation of the gland. Basal mammary epithelial cells (MECs) exhibit remarkable plasticity and progenitor activity that facilitate epithelial expansion. However, their activity must be tightly regulated to restrict excess basal cell activity. Here, we show that adhesion of basal cells to laminin α5-containing basement membrane matrix, which is produced by luminal cells, presents such a control mechanism. Adhesion to laminin α5 directs basal cells towards a luminal cell fate, and thereby results in a marked decrease of basal MEC progenitor activity in vitro and in vivo. Mechanistically, these effects are mediated through β4-integrin and activation of p21 (encoded by CDKN1A). Thus, we demonstrate that laminin matrix adhesion is a key determinant of basal identity and essential to building and maintaining a functional multicellular epithelium.