The kidney is formed by a reciprocally inductive interaction between two precursor tissues, the metanephric mesenchyme and the ureteric bud. This interaction can be divided into three processes: attraction of the ureteric bud toward the mesenchyme, maintenance of the mesenchyme in an undifferentiated state versus transition to an epithelial state, and further differentiation into multiple epithelial lineages, such as glomeruli and renal tubules. In this review we describe our recent findings related to each process. A mesenchymal nuclear zinc finger protein, Sall1, controls ureteric bud attraction by regulating a novel kinesin, Kif26b. The Sall1 gene is highly expressed in multipotent nephron progenitors in the mesenchyme, and these cells can partially reconstitute a three-dimensional structure in organ cultures following Wnt4 stimulation. While Notch2 is required for further differentiation of proximal nephron structures, ectopic Notch2 activation in the embryonic kidney depletes nephron progenitors, suggesting that Notch2 stabilizes--rather than dictates--nephron fate by shutting down the maintenance of undifferentiated progenitor cells.