MicroRNAs regulate diverse cellular processes and play an integral role in cancer pathogenesis. Genomic variation within miRNA target sites may therefore be important sources for genetic differences in cancer risk. To investigate this possibility, we mapped HapMap single nucleotide polymorphisms (SNP) to putative miRNA recognition sites within genes dysregulated in estrogen receptor-stratified breast tumors and used local linkage disequilibrium patterns to identify high-ranking SNPs in the Cancer Genetic Markers of Susceptibility (CGEMS) breast cancer genome-wide association study for further testing. Two SNPs, rs1970801 and rs11097457, scoring in the top 100 from the CGEMS study, were in strong linkage disequilibrium with rs1434536, an SNP that resides within a miR-125b target site in the 3' untranslated region of the bone morphogenic receptor type 1B (BMPR1B) gene encoding a transmembrane serine/threonine kinase. We validated the CGEMS association findings for rs1970801 in an independent cohort of admixture-corrected cases identified from families with multiple case histories. Subsequent association testing of rs1434536 for these cases and CGEMS controls with imputed genotypes supported the association. Furthermore, luciferase reporter assays and overexpression of miR-125b-mimics combined with quantitative reverse transcription-PCR showed that BMPR1B transcript is a direct target of miR-125b and that miR-125b differentially regulates the C and T alleles of rs1434536. These results suggest that allele-specific regulation of BMPR1B by miR-125b explains the observed disease risk. Our approach is general and can help identify and explain the mechanisms behind disease association for alleles that affect miRNA regulation.