Distinct transcriptional states are maintained through organization of chromatin, resulting from the sum of numerous repressive and active histone modifications, into tightly packaged heterochromatin versus more accessible euchromatin. Polycomb repressive complex 2 (PRC2) is the main mammalian complex responsible for histone 3 lysine 27 trimethylation (H3K27me3) and is integral to chromatin organization. Using in vitro and in vivo studies, we show that deletion of Suz12, a core component of all PRC2 complexes, results in loss of H3K27me3 and H3K27 dimethylation (H3K27me2), completely blocks normal mammary gland development, and profoundly curtails progenitor activity in 3D organoid cultures. Through the application of mammary organoids to bypass the severe phenotype associated with Suz12 loss in vivo, we have explored gene expression and chromatin structure in wildtype and Suz12-deleted basal-derived organoids. Analysis of organoids led to the identification of lineage-specific changes in gene expression and chromatin structure, inferring cell type–specific PRC2-mediated gene silencing of the chromatin state. These expression changes were accompanied by cell cycle arrest but not lineage infidelity. Together, these data indicate that canonical PRC2 function is essential for development of the mammary gland through the repression of alternate transcription programs and maintenance of chromatin states.