The essential role of vitamin A and its metabolites, retinoids, in kidney development has been demonstrated in vitamin A deficiency and gene targeting studies. Retinoids signal via nuclear transcription factors belonging to the retinoic acid receptor (RAR) and retinoid X receptor (RXR) families. Inactivation of RARaplpha and RARbeta2 receptors together, but not singly, resulted in renal malformations, suggesting that within a given renal cell type, their concerted function is required for renal morphogenesis. At birth, RARalpha beta2(-) mutants displayed small kidneys, containing few ureteric bud branches, reduced numbers of nephrons and lacking the nephrogenic zone where new nephrons are continuously added. These observations have prompted us to investigate the role of RARalpha and RARbeta2 in renal development in detail. We have found that within the embryonic kidney, RARalpha and RARbeta2 are colocalized in stromal cells, but not in other renal cell types, suggesting that stromal cells mediate retinoid-dependent functions essential for renal development. Analysis of RARalpha beta2(-) mutant kidneys at embryonic stages revealed that nephrons were formed and revealed no changes in the intensity or distribution of molecular markers specific for different metanephric mesenchymal cell types. In contrast the development of the collecting duct system was greatly impaired in RARalpha beta2(-) mutant kidneys. Fewer ureteric bud branches were present, and ureteric bud ends were positioned abnormally, at a distance from the renal capsule. Analysis of genes important for ureteric bud morphogenesis revealed that the proto-oncogene c-ret was downregulated. Our results suggest that RARalpha and RARbeta2 are required for generating stromal cell signals that maintain c-ret expression in the embryonic kidney. Since c-ret signaling is required for ureteric bud morphogenesis, loss of c-ret expression is a likely cause of impaired ureteric bud branching in RARalpha beta2(-) mutants.