Recent advances in the basic mechanisms of developmental biology have started to shed new light on the mechanisms of nephrogenesis. The kidney is the only epithelial organ that starts as mesenchyme and converts to epithelium. It appears that the mesenchyme is composed of stem cells that are able to form glomeruli and proximal and distal tubules under the inductive influences of the ureteric bud. Epithelial cells cultured in a three-dimensional matrix could be induced to form tubules under the influence of a soluble factor from fibroblasts. This factor was identified as scatter factor or hepatocyte growth factor. Polycystic kidney disease appears to be a developmental renal disease in which a basolateral protein, the Na/K ATPase, is mistargeted to the apical and lateral membranes.