The embryonic kidney is an excellent model system in which to address many fundamental issues in developmental biology. Inductive interactions are required for proliferation and differentiation of the ureter epithelium and kidney mesenchyme. Recent studies implicate a receptor-type tyrosine kinase as a target of inductive signals in the developing ureter. In the mesenchyme, the early induction response requires at least two transcription factors, WT1 and Pax-2. Through the integrated application of in vitro culture models and gene targeting methods, the molecular mechanisms underlying kidney morphogenesis are becoming clearer.