Tumor heterogeneity, the presence of multiple distinct subpopulations of cancer cells between patients or among the same tumors, poses a major challenge to current targeted therapies. The way these different subpopulations interact among themselves and the stromal niche environment, and how such interactions affect cancer stem cell behavior has remained largely unknown. Here, it is shown that an FGF-BMP7-INHBA signaling positive feedback loop integrates interactions among different cell populations, including mammary gland stem cells, luminal epithelial and stromal fibroblast niche components not only in organ regeneration but also, with certain modifications, in cancer progression. The reciprocal dependence of basal stem cells and luminal epithelium is based on basal-derived BMP7 and luminal-derived INHBA, which promote their respective expansion, and is regulated by stromal-epithelial FGF signaling. Targeting this interaction loop, for example, by reducing the function of one or more of its components, inhibits organ regeneration and breast cancer progression. The results have profound implications for overcoming drug resistance because of tumor heterogeneity in future targeted therapies.