MicroRNAs, activated by the enzyme Dicer1, control post-transcriptional gene expression. Dicer1 has important roles in the epithelium during nephrogenesis, but its function in stromal cells during kidney development is unknown. To study this, we inactivated Dicer1 in renal stromal cells. This resulted in hypoplastic kidneys, abnormal differentiation of the nephron tubule and vasculature, and perinatal mortality. In mutant kidneys, genes involved in stromal cell migration and activation were suppressed as were those involved in epithelial and endothelial differentiation and maturation. Consistently, polarity of the proximal tubule was incorrect, distal tubule differentiation was diminished, and elongation of Henle's loop attenuated resulting in lack of inner medulla and papilla in stroma-specific Dicer1 mutants. Glomerular maturation and capillary loop formation were abnormal, whereas peritubular capillaries, with enhanced branching and increased diameter, formed later. In Dicer1-null renal stromal cells, expression of factors associated with migration, proliferation, and morphogenic functions including α-smooth muscle actin, integrin-α8, -β1, and the WNT pathway transcriptional regulator LEF1 were reduced. Dicer1 mutation in stroma led to loss of expression of distinct microRNAs. Of these, miR-214, -199a-5p, and -199a-3p regulate stromal cell functions ex vivo, including WNT pathway activation, migration, and proliferation. Thus, Dicer1 activity in the renal stromal compartment regulates critical stromal cell functions that, in turn, regulate differentiation of the nephron and vasculature during nephrogenesis.