During embryonic development, the mesenchyme of the lungs, gut, kidneys, and other tissues expresses Trps1, an atypical member of the GATA-type family of transcription factors. Our previous work suggested the possibility that Trps1 acts downstream of bone morphogenic protein 7 (Bmp7), which is essential for normal renal development. To examine the role of Trps1 during early renal development, we generated Trps1-deficient mice and examined their renal histology. Compared with wild-type mice, Trps1-deficient newborn mice had fewer tubules and glomeruli, an expanded renal interstitium, and numerous uninduced metanephric mesenchymal cells, which resulted in fewer nephrons. In wild-type kidneys, Trps1 expression was present in ureteric buds, cap mesenchyme, and renal vesicles, whereas Trps1 was virtually absent in Bmp7-deficient kidneys. Furthermore, Trps1-deficient kidneys had low levels of Pax2 and Wt1, which are markers of condensed mesenchymal cells, suggesting that a lack of Trps1 affects the differentiation of cap mesenchyme to renal vesicles. In cultured metanephric mesenchymal cells, Bmp7 induced Trps1 and E-cadherin and downregulated vimentin. Knockdown of Trps1 with small interference RNA inhibited this Bmp7-induced mesenchymal-to-epithelial transition. Last, whole-mount in situ hybridization of Wnt9b and Wnt4 demonstrated prolonged branching of ureteric buds and sparse cap mesenchyme in the kidneys of Trps1-deficient mice. Taken together, these findings suggest that normal formation of nephrons requires Trps1, which mediates mesenchymal-to-epithelial transition and ureteric bud branching during early renal development.