Reciprocal interactions between the epithelium and mesenchyme are essential for the establishment of proper tissue morphology during organogenesis and tissue regeneration as well as for the maintenance of cell differentiation. With this review, we highlight the importance of epithelial-mesenchymal cross talk in healthy tissue and further discuss its significance in engineering functional tissues in vitro. We focus on the urinary bladder and small intestine, organs that are often compromised by disease and are as such in need of research that would advance effective treatment or tissue replacement. To date, the understanding of epithelial-mesenchymal reciprocal interactions has enabled the development of in vitro biomimetic tissue equivalents that have provided many possibilities in treating defective, damaged, or even cancerous tissues. Although research of the past several years has advanced the field of bladder and small intestine tissue engineering, one must be aware of its current limitations in successfully and above all safely introducing tissue-engineered constructs into clinical practice. Special attention is in particular needed when treating cancerous tissues, as initially successful tumor excision and tissue reconstruction may later on result in cancer recurrence due to oncogenic signals originating from an altered stroma. Recent rather poor outcomes in pioneering clinical trials of bladder reconstructions should serve as a reminder that recreating a functional organ to replace a dysfunctional one is an objective far more difficult to reach than initially foreseen. When considering effective tissue engineering approaches for diseased tissues in humans, it is imperative to introduce animal models with dysfunctional or, even more importantly, cancerous organs, which would greatly contribute to predicting possible complications and, hence, reducing risks when translating to the clinic.