Late-gestation lung protein 1 (LGL1) is a glycoprotein secreted by fetal lung mesenchyme that stimulates branching morphogenesis of the developing lung bud. We show that Lgl1 mRNA and protein are also expressed in mesenchymally derived lineages of fetal kidney. Although Lgl1 expression is stimulated by glucocorticoids in kidney cells, cortisol (10(-7) M) actually suppresses ureteric bud branching of fetal kidneys from HoxB7/GFP mice in explant culture. However, early branching morphogenesis in the lung and kidney is stimulated by retinoic acid, and we identified putative retinoic acid response elements in the Lgl1 promoter. All-trans-retinoic acid (10(-6) M) stimulated Lgl1 promoter activity and endogenous Lgl1 mRNA expression in vitro. Branching of cultured fetal kidney explants was increased in the presence of all-trans retinoic acid (10(-6) M). Heterozygous Lgl1 knockout mice were crossed to HoxB7/GFP mice to visualize the extent of ureteric bud branching at fetal stages. At embryonic (E) days E12.5-E13.0, mutant Lgl1(+/-) embryos showed a 20% reduction in ureteric bud branching compared with wild-type littermates. We propose a model in which retinoic acid stimulates branching morphogenesis by activating Lgl1 early in development. The prominent effects of glucocorticoids on Lgl1 expression in late lung development suggest a second role for LGL1 in alveolar maturation.