The definitive mammalian kidney forms as the result of reciprocal interactions between the ureteric bud epithelium and metanephric mesenchyme. As osteogenic protein 1 (OP-1/bone morphogenetic protein 7), a member of the TGF-beta superfamily of proteins, is expressed predominantly in the kidney, we examined its involvement during metanephric induction and kidney differentiation. We found that OP-1 mRNA is expressed in the ureteric bud epithelium before mesenchymal condensation and is subsequently seen in the condensing mesenchyme and during glomerulogenesis. Mouse kidney metanephric rudiments cultured without ureteric bud epithelium failed to undergo mesenchymal condensation and further epithelialization, while exogenously added recombinant OP-1 was able to substitute for ureteric bud epithelium in restoring the induction of metanephric mesenchyme. This OP-1-induced nephrogenic mesenchyme differentiation follows a developmental pattern similar to that observed in the presence of the spinal cord, a metanephric inducer. Blocking OP-1 activity using either neutralizing antibodies or antisense oligonucleotides in mouse embryonic day 11.5 mesenchyme, cultured in the presence of metanephric inducers or in intact embryonic day 11.5 kidney rudiment, greatly reduced metanephric differentiation. These results demonstrate that OP-1 is required for metanephric mesenchyme differentiation and plays a functional role during kidney development.