The Shulchan Aruch (Code of Jewish Law) states (Yoreh De’ah 97:1): “We do not knead dough with milk, lest one will come to eat it with meat. If he did knead [the dough], the bread is prohibited, even to eat it by itself.”
The Sages recognized that because bread is the staple of a meal, one might mistakenly use dairy bread during a meat meal (and for that matter, fleishig bread in a milchig meal). Understanding how readily one might mix meat and milk in this fashion, the Sages prohibited the baking of dairy bread.
The Sages were so concerned with the possibility of mixing dairy bread with meat that they also forbade the consumption of dairy bread even on its own or in a dairy meal. They gave such bread the status of “nevelah,” the term that is otherwise used to designate an improperly slaughtered animal.
There are two exceptions to the prohibition. First, one may bake dairy bread at home in an amount that will be consumed at one time. There is a difference of opinion concerning the parameters of this leniency. One view is that the bread must be baked only in an amount that will be consumed at one meal. The other view is that the bread can be made for consumption on one day, albeit at more than one meal.
Second, one may bake dairy bread for consumption at home if he or she shapes it differently than ordinary bread. Because of the unusual shape of the bread, one will not accidentally eat it with meat. The custom to bake dairy bread for Shavuos is based upon resort to either of these leniencies.
It should be noted that the bread becomes nevelah at the time of baking (Pischei Teshuvah, Ibid.). Therefore, the alteration of its shape must occur before the bread has been baked. Cutting the bread to change the shape after it has already been baked does not alter its nevelah status. Similarly, cutting the bread to a size that will be consumed at one time does not negate the prohibition once the bread has been baked.
In the case of bread that is sold commercially, labeling the package “Dairy” also does not change its status; the bread remains prohibited.
Keep in mind that the same rules governing dairy bread apply to bread made with meat. It too is forbidden, unless it is baked in an unusual shape or it is baked in a small quantity.
It is advisable to consult a knowledgeable Orthodox rabbi before baking dairy bread.