Cows exposed to heat stress during late gestation produce less milk in the subsequent lactation. Moreover, there are long-term impacts on the fetus developing under these conditions; in-utero heat-stressed heifers produce less milk during their first lactation. We hypothesized that heat stress during late gestation affects lactation performance of the cow and the developing offspring by impairing mammary gland (MG) development. Cows were heat stressed (HT, only provided shade, n = 11) or cooled (CL, provided shade, fans, and soakers, n = 10) during late gestation (dry period ~46 d). After birth, heifer calves born to cows heat stressed during late gestation were managed as a group, housed under identical conditions, and followed to their first lactation (in-utero HT, n = 3; in-utero CL, n = 4). Milk yield was recorded daily from calving to 84 d in milk (DIM). Heifer MG was biopsied at 21 and 42 DIM and cow MG was biopsied at 14, 42, and 84 DIM of their respective lactations. Tissues were paraffin embedded, sectioned, and stained with hematoxylin and eosin. Images were taken at 10x and 20x magnification, respectively, using an EVOS microscope. The number of alveoli (at 10x) was counted and alveoli area (at 20x) was measured using Image J software. Data were analyzed by ANOVA, with DIM as a repeated measure. CL cows had greater milk yield relative to HT cows (40.0 vs. 34.3 ± 0.80 kg/d; P < 0.01). For heifers, milk yield was similar between treatments (31.0 and 30.5 ± 2.5 kg for in-utero CL and HT, respectively). CL cows had more alveoli than HT cows (197.7 vs. 167.3 ± 9.2; P = 0.04), but alveoli area was similar between treatments. In contrast, MG alveoli number of heifers was similar between treatments but alveoli area was lower for in-utero HT heifers relative to in-utero CL heifers (62,145 vs. 99,088 ± 6,912 µm²; P = 0.01). Our results indicate that exposure of pregnant cows to heat stress during late gestation (i.e., dry period) not only impairs normal development of the mammary gland during their subsequent lactation, but also affects the mammary development of the in-utero fetus.