Embryonic stem (ES) cells have been induced to differentiate in vitro into a broad spectrum of specialized cell types, including hematopoietic, pancreatic, and neuronal cell types. Such ES-derived cells can provide a valuable source of progenitor cell types. Whereas undifferentiated ES cells can become integrated into a developing kidney and contribute to tubular epithelia, the ability to generate renal precursor cells in vitro has not been reported. This study used a combination of nephrogenic growth factors to differentiate ES cells into renal epithelial cells that are capable of integrating into a developing kidney with very high efficiency. Using a combination of retinoic acid, Activin-A, and Bmp7, cultured ES cells can be induced to express markers specific for the intermediate mesoderm, from which the kidneys arise. Embryoid bodies that are cultured in the presence of nephrogenic factors can respond to inductive signals and form epithelial structures in vitro. When injected into developing kidney rudiments, treated ES cells contribute to tubular epithelia with near 100% efficiency. These methods may facilitate the large-scale culture of renal epithelial precursor cells for a variety of applications.