PAX2, a member of the "paired-box" family of homeotic genes, is a nuclear transcription factor expressed in the early stages of nephrogenesis by induced blastemal cells as they progress from mesenchymal condensates to the "S-shaped" stage and also by the ureteric bud. Spontaneous mutations in one copy of PAX2 in humans causes a syndrome of proteinuric renal failure and coloboma of the eye (P. Sanyanusin et al., Nat. Genet. 9 (1995) 358-363); transgenic mice with disruption of the PAX2 gene are anephric (M. Torres et al., Development 121 (1995) 4057-4067. Although PAX2 is clearly critical for normal kidney development, its direct effects on kidney cell phenotype are unknown. To address this issue, we developed stable transfectants of the HEK293 human fetal kidney epithelial cell line expressing human PAX2 protein under tetracycline-regulatable promoter. In these cells, PAX2 had no effect on the proliferative rate, but increased the expression of the Wilms' tumor gene (2-fold) and E-cadherin (7-fold). PAX2 had a strong inhibitory effect on vimentin; vimentin/GAPDH mRNA ratio was suppressed to 8% of control whereas cytokeratin-18/GAPDH mRNA ratio was unchanged. During nephrogenesis, loss of vimentin and onset of low-level WT1 and E-cadherin expression occur in mesenchymal condensates. Our observations suggest that these events may be, in part, regulated by PAX2.