The interactions between the nephrogenic mesenchyme and the ureteric bud during kidney development are well documented. While recent studies have shed some light on the importance of the stroma during renal development, many of the signals generated in the stroma, the genetic pathways and interaction networks involving the stroma are yet to be identified. Our previous studies demonstrate that retinoids are crucial for branching of the ureteric bud and for patterning of the cortical stroma. In the present study we demonstrate that autocrine retinoic acid (RA) signaling in stromal cells is critical for their survival and patterning, and show that Extracellular matrix 1, Ecm1, a gene that in humans causes irritable bowel syndrome and lipoid proteinosis, is a novel RA-regulated target in the developing kidney, which is secreted from the cortical stromal cells surrounding the cap mesenchyme and ureteric bud. Our studies suggest that Ecm1 is required in the ureteric bud for regulating the distribution of Ret which is normally restricted to the tips, as inhibition of Ecm1 results in an expanded domain of Ret expression and reduced numbers of branches. We propose a model in which retinoid signaling in the stroma activates expression of Ecm1, which in turn down-regulates Ret expression in the ureteric bud cleft, where bifurcation normally occurs and normal branching progresses.