The c-ret gene encodes a receptor tyrosine kinase that is expressed in the Wolffian duct and ureteric bud of the developing excretory system. Newborn mice homozygous for a mutation in c-ret displayed renal agenesis or severe hypodysplasia, suggesting a critical role for this gene in metanephric kidney development. To investigate the embryological basis of these defects, we characterized the early development of the excretory system in mutant homozygotes, and observed a range of defects in the formation, growth and branching of the ureteric bud, which account for the spectrum of renal defects seen at birth. Co-culture of isolated ureteric buds and metanephric mesenchyme show that the primary defect is intrinsic to the ureteric bud. While the mutant bud failed to respond to induction by wild-type mesenchyme, mutant mesenchyme was competent to induce the growth and branching of the wild-type bud. Furthermore, the mutant metanephric mesenchyme displayed a normal capacity to differentiate into nephric tubules when co-cultured with embryonic spinal cord. These findings suggest a model in which c-ret encodes the receptor for a (yet to be identified) factor produced by the metanephric mesenchyme, which mediates the inductive effects of this tissue upon the ureteric bud. This factor appears to stimulate the initial evagination of the ureteric bud from the Wolffian duct, as well as its subsequent growth and branching.