The TGFbeta superfamily plays diverse and essential roles in kidney development. Gdf11 and Bmp4 are essential for outgrowth and positioning of the ureteric bud, the inducer of metanephric mesenchyme. During nephrogenesis, Bmp7 is required for renewal of the mesenchyme progenitor population. Additionally, in vitro studies demonstrate inhibitory effects of BMPs and TGFbetas on collecting duct branching and growth. Here, we explore the predicted models of TGFbeta superfamily function by cell-specific inactivation of Smad4, a key mediator of TGFbeta signaling. Using a HoxB7cre transgene expressed in ureteric bud and collecting duct, we find that development of the collecting duct is Smad4 independent. By contrast, removal of Smad4 in nephrogenic mesenchyme using the Bmp7(cre/+) allele leads to disorganization of the nephrogenic mesenchyme and impairment of mesenchyme induction. Smad4-deficient metanephric mesenchyme does not display defects in inducibility in LiCl or spinal cord induction assays. However, in situ hybridization and lineage analysis of Smad4 null mesenchyme cells at E11.5 show that the nephrogenic mesenchyme does not aggregate tightly around the ureteric bud tips, but remains loosely associated, embedded within a population of cells expressing markers of both nephrogenic mesenchyme and peripheral stroma. We conclude that the failure of recruitment of nephrogenic mesenchyme leaves a primitive population of mesenchyme at the periphery of the kidney. This population is gradually depleted, and by E16.5 the periphery is composed of cells of stromal phenotype. This study uncovers a novel role for TGFbeta superfamily signaling in the recruitment and/or organization of the nephrogenic mesenchyme at early time-points of kidney development. Additionally, we present conclusive genetic lineage mapping of the collecting duct and nephrogenic mesenchyme.