Understanding epithelial stem cell differentiation and morphogenesis during breast tissue development is essential, as disruption in these processes underlie breast cancer formation. We used a next-generation single-cell-derived organoid model to investigate how individual stem cells give rise to complex tissue. We show that discoidin domain receptor 1 (DDR1) inhibition traps cells in a bipotent state, blocking alveolar morphogenesis and luminal cell expansion, which is necessary for complex epithelium formation. Disrupting RUNX1 function produced nearly identical phenotypes, underscoring its critical role downstream of DDR1. Mechanistically, DDR1 affects the interaction and expression of RUNX1 and its cofactor core binding factor beta (CBFβ), thereby regulating its activity. Mutational analyses in breast cancer patients reveal frequent alterations in the DDR1-RUNX1 signaling axis, particularly co-occurring mutations. Together, these findings uncover DDR1-RUNX1 as a central signaling pathway driving breast epithelial differentiation, whose dysregulation may contribute fundamentally to breast cancer pathogenesis.