The mouse scaramanga (ska) mutation impairs mammary gland development such that both abrogation and stimulation of gland formation occurs. We used positional cloning to narrow the interval containing scaramanga (ska) to a 75.6-kb interval containing the distal part of the Neuregulin3 (Nrg3) gene. Within this region the only sequence difference between ska and wild-type mice is in a microsatellite repeat within intron 7. This alteration correlates with variations in Nrg3 expression profiles both at the whole embryo level and locally in the presumptive mammary region in ska mice. Localized expression of Nrg3 and its receptor, Erbb4, in the presumptive mammary region around the future bud site prior to morphological appearance of buds and the expression of bud epithelial markers further support an inductive role. Finally, Neuregulin3 (Nrg3)-soaked beads can induce expression of the early bud marker Lef1 in mouse embryo explant cultures, and epithelial bud formation can be observed histologically, suggesting that initiation of mammary bud development occurs. Taken together, these results indicate that a Neuregulin signaling pathway is involved in specification of mammary gland morphogenesis and support the long-held view that mesenchymal signal(s) are responsible for mammary gland inductive/initiating events.