Cellular senescence suppresses cancer by arresting cells at risk of malignant tumorigenesis. However, senescent cells also secrete molecules that can stimulate premalignant cells to proliferate and form tumors, suggesting the senescence response is antagonistically pleiotropic. We show that premalignant mammary epithelial cells exposed to senescent human fibroblasts in mice irreversibly lose differentiated properties, become invasive and undergo full malignant transformation. Moreover, using cultured mouse or human fibroblasts and non-malignant breast epithelial cells, we show that senescent fibroblasts disrupt epithelial alveolar morphogenesis, functional differentiation and branching morphogenesis. Furthermore, we identify MMP-3 as the major factor responsible for the effects of senescent fibroblasts on branching morphogenesis. Our findings support the idea that senescent cells contribute to age-related pathology, including cancer, and describe a new property of senescent fibroblasts - the ability to alter epithelial differentiation - that might also explain the loss of tissue function and organization that is a hallmark of aging.