Keratinocyte growth factor/fibroblast growth factor 7 (KGF/FGF7) is known to be a potent growth factor for mammary cells but its origin, cellular targets and mode of action in the breast are unclear. In this study, we carried out studies to determine the localisation of FGF7 and its receptor, and the related growth factor FGF10. We also determined the factors that regulate FGF7 release from stromal cells and the effects of FGF7 on normal and neoplastic breast cells. Using an FGF7-specific antibody which does not react with the FGF7 heparan sulphate proteoglycan (HSPG)-binding site, we showed epithelial and myoepithelial immunohistochemical staining in normal breast sections, and epithelial staining in breast carcinomas. Stromal staining was also detected in some lobular carcinomas as well as a subset of invasive ductal carcinomas. FGF10 and FGF receptor (FGFR)2 immunostaining showed a similar epithelial expression pattern, whereas no stromal staining was observed. We purified normal breast stromal, epithelial and myoepithelial cells and showed that FGF7 stimulated proliferation of both epithelial cell types, but not stromal fibroblasts. We also examined the effects of FGF7 on Matrigel-embedded organoids, containing both epithelial and myoepithelial cells, and showed FGF7 induced an increase in cellular proliferation. Furthermore, conditioned medium derived from stromal cells was shown to increase the proliferation of normal and neoplastic breast epithelial cells, which could be abolished by a neutralising antibody to FGF7. Finally, we showed that interleukin-1beta, but not oestradiol or other oestrogen receptor ligands, caused a dose-related FGF7 release. Further results also indicate that the epithelial localisation of FGF7 and FGF10 in breast tissue sections is likely to be due to their binding to their cognate receptor. In summary, our findings suggest that FGF7 is a paracrine growth factor in the breast. FGF7 is produced by the breast stromal fibroblasts and has profound proliferative and morphogenic roles on both epithelial and myoepithelial cells.