Little is known about chromatin mechanisms that regulate tumor-initiating cells that are proposed to be responsible for tumor recurrence and relapse. We have previously shown that Pygopus 2 (Pygo2), a chromatin effector and context-dependent Wnt signaling coactivator, regulates mammary gland development by expanding epithelial stem/progenitor cells. However, the role of Pygo2 in mammary tumorigenesis in vivo remains to be addressed. In this study, we show that epithelia-specific ablation of Pygo2 in MMTV-Wnt1 transgenic mice results in delayed mammary ductal elongation, but the hyperbranching phenotype, aberrant accumulation of stem/progenitor-like cells, and canonical Wnt signaling output are largely unaffected. Chronic loss of Pygo2 significantly delays mammary tumor onset in MMTV-Wnt1 females, whereas acute deletion of Pygo2 in MMTV-Wnt1 tumor cells leads to a significant decrease in their tumor-initiating capability upon transplantation. Finally, we provide evidence supporting a role for Pygo2 in modulating the lineage potential of MMTV-Wnt1 tumor initiating cells. Collectively, our results suggest that Pygo2 acts at a step downstream of mammary stem cell accumulation to facilitate transformation, and that it regulates the tumor initiating capacity and lineage preference of the already transformed mammary cells, in MMTV-Wnt1 mice. These findings offer valuable insights into our understanding of the molecular basis of heterogeneity within breast tumors.