Retraction artifact resulting in clear spaces around tumor cell nests is frequently seen in histologic material and may present difficulty in their differentiation from lymphovascular invasion. We noticed that retraction artifact seemed to be more common around groups of breast cancer cells compared with benign acini, and when extensively present, metastasis to axillary lymph nodes was often seen. Thus, we performed a study of 304 cases of stage pT1 and pT2 breast carcinomas to test our hypothesis that extensive retraction artifact in tumors correlates with lymphatic spread and outcome. Tumors were evaluated to determine the presence and extent of retraction artifact around tumor cell nests and the presence of lymphatic invasion. Lymphatic invasion was confirmed by D2-40 immunostaining. The extent of retraction artifact in tumors was correlated with clinicopathologic tumor features and patient outcome. Variable degree of retraction artifact was present in 183 of 304 (60%) invasive carcinomas, with its extent ranging from 0% to 90% (median 5%). The extent of retraction artifact showed a significant correlation with tumor size, histologic type, histologic grade, presence of lymphovascular invasion, and nodal metastasis. Further, extensive retraction artifact was significantly associated with poor overall and disease-free survival in both univariate and multivariate analyses. We propose that the apparent retraction of the stroma from cells of invasive breast carcinoma on routine histologic sections is not a phenomenon merely due to inadequate fixation as currently believed. Rather, it likely signifies important biologic changes that alter tumor-stromal interactions and contribute to lymphatic spread and tumor progression.