Terminal epithelial cell differentiation is a crucial step in development. In the kidney, failure of terminal differentiation causes dysplasia, cystogenesis, and cancer. The present study provides multiple lines of evidence implicating the tumor suppressor protein p53 in terminal differentiation of the renal epithelium. In the developing kidney, p53 is highly enriched in epithelial cells expressing renal function genes (RFGs), such as receptors for vasoactive hormones, the sodium pump, and epithelial sodium and water channels. In comparison, proliferating renal progenitors express little if any p53 or RFGs. p53 binds to and transactivates the promoters of RFGs. In contrast, expression of a dominant negative mutant form of p53 inhibits endogenous RFG expression. Moreover, binding of endogenous p53 to the promoters of RFGs coincides with the differentiation process and is attenuated once renal epithelial cells are fully differentiated. Finally, p53-null pups exhibit a previously unrecognized aberrant renal phenotype and spatial disorganization of RFGs. Interestingly, the p53-related protein p73 is unable to functionally compensate for the loss of p53 and fails to efficiently activate RFG transcription. We conclude that p53 promotes the biochemical and morphological differentiation of the renal epithelium. Aberrations in p53-mediated terminal differentiation may therefore play a role in the pathogenesis of nephron dysgenesis and dysfunction.