Incomplete urethral tubularization (hypospadias) and anorectal abnormalities are two common and poorly understood birth defects that affect the extreme caudal midline of the human embryo. We now show that cell surface molecules essential for proper axon pathfinding in the developing nervous system, namely ephrin-B2 and the ephrin receptors EphB2 and EphB3, also play major roles in cell adhesion events that tubularize the urethra and partition the urinary and alimentary tracts. Mice carrying mutations which disrupt the bidirectional signals that these molecules transduce develop with variably penetrant severe hypospadias and incomplete midline fusion of the primitive cloaca. We further show that animals completely lacking ephrin-B2 reverse signaling present a fully penetrant failure in cloacal septation. This results in severe anorectal malformations characterized by an absence of the terminal-most hindgut (rectum) and formation of a fistula that aberrantly connects the intestines to the urethra at the base of the bladder. Consistent with an apparent requisite for both forward and reverse signaling in these caudal remodeling events, EphB2 and ephrin-B2 are coexpressed at the midline in the fusing urethral/cloacal endoderm and underlying lateral mesoderm of the urorectal septum that migrates toward the caudal midline as the cloaca septates. Our data thus indicate that B-subclass Eph and ephrin molecules play an important role in these clinically significant midline cell-cell adhesion and fusion events.