Mammary glands develop through primary ductal elongation and side branching to maximize the spatial area. Although primary ducts are generated by bifurcation of terminal end buds, the mechanism through which side branching occurs is still largely unclear. Here, we show that inhibitor of DNA-binding 2 (ID2) drives side branch formation through the differentiation of K6(+) bipotent progenitor cells (BPs) into CD61(+) luminal progenitor cells (LPs). Id2-null mice had side-branching defects, along with developmental blockage of the differentiation of K6(+) BPs into CD61(+) LPs. Notably, CD61(+) LPs were found in budding and side branches, but not in terminal end buds. Hormone reconstitution studies using ovariectomized MMTV-hemagglutinin-nuclear localized sequence-tagged Id2 transgenic mice revealed that ID2 is a key mediator of progesterone, which drives luminal lineage differentiation and side branching. Our results suggest that CD61 is a marker of side branches and that ID2 regulates side branch formation by inducing luminal lineage commitment from K6(+) BPs to CD61(+) LPs.