Basal-like breast cancer may originate from luminal epithelial or cancerous cells. Inadequately repaired DNA damage impairs luminal differentiation and promotes aberrant luminal to basal trans-differentiation in mammary epithelial cells (MECs). Ubiquitin-specific peptidase 11 (USP11), a deubiquitinase, plays a critical role in DNA damage repair. The role of USP11 in controlling mammary cell differentiation and tumorigenesis remains poorly understood. We generated Usp11 knockout mice and breast cancer cell lines expressing wild-type (WT) and mutant form of USP11. By using these mutant mice, cell lines, and human USP11-deficient and -proficient breast cancer tissues, we tested how USP11 controls mammary cell fate. We generated Usp11 knock-out mice and found that deletion of Usp11 reduced the expression of E-cadherin and promoted DNA damage in MECs. Overexpression of WT USP11, but not a deubiquitinase-inactive mutant form of USP11, promoted luminal differentiation, enhanced DNA damage repair, and suppressed tumorigenesis in mice. Mechanistically, we found that USP11 enhanced the protein expression of E-cadherin dependent on its deubiquitinase activity, and that USP11 deubiquitinated E-cadherin at K738. We discovered that USP11 bound to E-cadherin through its C-terminal region. In human breast cancers, expression of USP11 was positively correlated with that of E-cadherin, and high USP11 predicted better recurrence-free survival. Our findings provide compelling genetic and biochemical evidence that USP11 not only promotes DNA damage repair but also deubiquitinates E-cadherin and maintains the luminal feature of mammary tumor cells, thereby suppressing luminal breast cancer.