Metanephric mesenchyme gives rise to both the epithelial cells of the nephron and the stromal cells of the mature kidney. The function of the stroma. in kidney morphogenesis is poorly understood. We have generated mice with a null mutation in the Winged Helix (WH) transcription factor BF-2 to examine its function during development. BF-2 expression within the developing kidney is restricted to the stromal cell lineage. Homozygotes die within the first 24 hr after birth with abnormal kidneys. Mutant kidneys are small, fused longitudinally, and rotated 90 degrees ventrally. Histological examination reveals a smaller collecting system, numerous large condensations of mesenchyme, and a decrease in the number of nephrons. Using molecular markers we show that induction and condensation of the nephrogenic mesenchyme occurs normally in mutant. The disruption of BF-2 reduces the rate of differentiation of the condensed mesenchyme into tubular epithelium, as well as the rate of growth and branching of the ureter and collecting system. Our findings demonstrate that BF-2 and stromal cells have essential functions during kidney morphogenesis. Furthermore, they suggest that BF-2 controls the production, by the stroma, of signals or factors that are required for the normal transition of induced mesenchyme into tubular epithelium and full growth and branching of the collecting system.