Loss of BRCA1 p220 function often results in basal-like breast cancer (BLBC), but the underlying disease mechanism is largely opaque. In mammary epithelial cells (MECs), BRCA1 interacts with multiple proteins, including NUMB and HES1, to form complexes that participate in interstrand crosslink (ICL) DNA repair and MEC differentiation control. Unrepaired ICL damage results in aberrant transdifferentiation to a mesenchymal state of cultured, human basal-like MECs and to a basal/mesenchymal state in primary mouse luminal MECs. Loss of BRCA1, NUMB, or HES1 or chemically induced ICL damage in primary murine luminal MECs results in persistent DNA damage that triggers luminal to basal/mesenchymal transdifferentiation. In vivo single-cell analysis revealed a time-dependent evolution from normal luminal MECs to luminal progenitor-like tumor cells with basal/mesenchymal transdifferentiation during murine BRCA1 BLBC development. Growing DNA damage accompanied this malignant transformation.